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Considering Offering a Groupon? Read This First.


I’m going to break down why I don’t like Groupon and why I think group-buying as it stands now is horrible.  I’m going to use Groupon in this post to stand for all group buying platforms (with some small exceptions).

#1 – Groupon does not make financial sense for businesses

Let’s get right into it.  Let’s say I’m a business offering a $40 Groupon to customers for $20.  I don’t even get $20, I get $14 after Groupon takes their cut.

Groupon's Cut

That’s 35%, I’m losing 65% of my revenue to bring in a (hopefully new) customer.

OK, so maybe you’re thinking “but what if I bring in a new customer that comes back again and again?”  Yes, that could happen, but is it REALLY worth it?  Even if you do bring in a few loyal customers, they would have to vastly overcompensate to allow you to recover the lost revenue from offering the Groupon.

Here’s something else…

#2 – Groupon buyers are bargain shoppers

You know why Apple makes so much money?  Besides great marketing, they stand for the value of their product.  They don’t discount, they don’t make special offers.  Apple customers are used to paying full price, they’ve been conditioned to.  I don’t care whether you agree with the fact that people do that or not, it’s the truth.  Apple sells full priced products.

Groupon on the other hand is creating a legion of bargain hunting shoppers.  How are you supposed to charge a customer $100 for a spa treatment when you just gave it away for $50 last week and a competitor of yours is giving theirs away at $50 this week?

This creates another problem…

#3 – Groupon does not build loyalty

Do you think Groupon buyers are coming back to your business or going back to Groupon looking for another deal?  Maybe you think you’re THAT good…you’re probably not.

Groupon encourages customers to come back again and again…to Groupon.  And they are there looking to get another deal, which we’ve discussed is at the businesses expense.


..if it’s not financially sound for the business and brings in bargain shoppers with a low likelihood of loyalty, WHY OFFER A GROUPON?

A Better Solution

Here’s what I think.  I think offering a Groupon is lazy.  No seriously, it’s lazy.  You want to bring in new people?  You want to get more business?  Then stop focusing on these bargain shoppers; instead focus on YOUR CUSTOMERS!  If you have people walking in the door already, why not turn them into your marketing department.  Take some time to build a community on Facebook, Twitter or wherever your customers are and offer them the discounts instead.

Here’s an idea: Offer YOUR CUSTOMERS 50% off to bring in someone new (who will pay either full price or a slightly reduced price).  This way you are rewarding your existing customers with a discount AND getting new business at full or nearly full price.  They already come in, they already like you, why not use that to your advantage?

Here’s another idea: Why not build a strong Twitter and Facebook following of customers and people that already like you?  That way if things are slow and you are considering offering a Groupon, you can save yourself the cut that you’d pay to Groupon and bring your customers back in.  Reward your loyal fans and followers with 50% off, not just any stooge with an email address and a taste for daily deals.  You might even find that your customers will tell their friends.  And at the very least, you are saving yourself around 15%.

My point is this: if you are going to offer 50% off, why not offer it to your customers either as a reward for being part of your community or incentivizing them for bringing you new people that they would serve as word of mouth representatives for?
Why give Groupon 15% to bring you the wrong kind of customer?

Are you a visual learner?  Here’s what it looks like:


Final thoughts

If you really feel compelled to offer a Groupon be smart about it.  Make the amount small.  In fact…
Here’s an idea: Offer a $2 Groupon for $1.  Plan something exciting and unique for those that get it.  Ask them if it’s their first time with you and if it is reward that tiny Groupon with something extraordinary. Maybe make a special menu entirely for people who bought the $2 Groupon.  Whatever it is, don’t just give a bargain, give an experience.  Do something different.
Or just buy a standard Groupon and throw money away trying to get new businesses.  If the math I just showed you didn’t make sense then you might be the right type of business to offer a Groupon.  Don’t worry about it too much though, your business will probably be closed soon anyway if you are that desperate that you’re willing to take 35% from bargain shoppers on the off-chance that it brings you substantial new business.  Good luck.

Join The Conversation

  • Jun 2 Posted 3 years ago Ben Gazzara

    Good article, but its a bit broad. Some businesses like ours have exercised these other options to no avail. Additionally, what is stopping one of the customers bringing their mate who is also a regular? So this has its own set of problems. 

    One tip for those that are about to run a campaign with Group on. Ask them if they will be using google ads that target people that search for your product/business. If so, tell them no deal if they dont agree to remove these google ad search words. Put it this way, if someone wants to know when Joe's Hamburger Shop opens so he can get a burger and googles "joes hamburgers", and is then greeted by a 50% voucher from Group on at the top of the google page, isnt this just cannabilsing yourself? Group on do this, so be firm that you dont want them to do it. 


  • Jul 2 Posted 3 years ago melvinrajiv (not verified)

    Hi Jeff, you've explaning so well, I would say that consumers are longing over Groupon and other Daily deal websites  right now, but real value for businss. According to me it’s definitely a win for consumers. —but if you’re looking to bring in repeat customers and gain brand loyalty,. Your best deal? and develop a loyalty reward program for your existing customers.

  • Apr 18 Posted 4 years ago Henry321

    Groupon can be great if done right. Here are my numbers.

    Intro lesson normally $100 for 2 hours ($50 an hour I make). (Usually 1 person sometimes groups as we don't have that many clients, with groupon we now can be filled and do groups of 4-6 at a time for the one lesson) Also many people buy vouchers and never redeem them.

    groupon deal $50 I get $25 of that. $25x4-6 = $100-150 which = $50-75 an hour for me working + selling many of the introduction lesson clients gear on commision afterwards and also getting some return customers. 

    Of course offering product at such a discounted rate you would lose money, but for group services, desserts, drink, etc. can be great

    Main thing is need to do numbers first. 

  • Nov 30 Posted 4 years ago Richard T

    I'm a regular customer at a restaurant for which I just saw a groupon.  The groupon is for 2 meals and appetizer for $25 "valued at $58."  They have sold thousands.

    The interesting thing about this groupon is that my wife and I have never spent more than $25 at this particular restaurant.  Granted, we don't normally order appetizers but their dishes are on average about $10 and appetizers around $8. 

    For this particular restaurant, this groupon will definitely work.  People will not save much money -- but once they realize they can dine for around $25 every time, I'm sure they will come back over and over again!

  • Nov 30 Posted 4 years ago Richard T

    What the author is suggesting is that you reach out to your current customers (thereby marketing to them) and make them feel valuable.  In other words -- you market to your current, loyal customers -- don't make them pay full price and then go out and provide new value-seeking customers 50% off while your loyal customers get nothing.

    As a consumer, I cannot stand seeing coupons or offers for "new" customers when I am a loyal customer.  Makes me feel like the company values new business than my loyal business.

  • Oct 19 Posted 4 years ago Priyanka Swain

    I have a question. Please give answer to me...

    Merchant Pays an one time $99 set-up fee, plus a percentage commission for the sales we bring to them. lets say 25% or $25. for every $100.

    The Percentage is split, we keep a small (%) for promotions and reward a (%) percent to their customers who made a purchase with them to keep them coming back.

    How do we get paid? so we can pay out the % to their customers.

  • Loyalty's picture
    Sep 11 Posted 4 years ago Loyalty

    Groupon is great for the consumer and great for Groupon, but not so great for the Merchant.  Groupon gives their shopping community incentives to jump from merchant to merchant.  Where's the Loyalty in that?   At least there is a Loyalty rewards program that makes a difference for the merchant and the consumer, and it's not Groupon.

  • Mar 25 Posted 5 years ago catatstrophecathy

    Funny I just blogged about this as a customer.  I don't like dealing with groupon and all the other discount sites.  It's extra hassel and time and deadlines that I don't need.  But I do think a lot of businesses charge too much and you have to use groupon to get a normal price. 


    $25 for a one hour fitness class is a joke but that's what one studio wanted after my first free class (had coupon from the business itself).  I told them I liked the class but thought that was a bit high.  The only other option was to join and pay monthly dues and I am way too busy for that.  Sad since I liked the business and would return but not at that price.  It is not my job to make the owner rich and there are plenty of other fitness classes around for much cheaper.  Well the very next day a groupon appears and I am now getting the classes for $6.50 each.  I would have gladly paid the business this much directly but they let me walk instead of dealing directly with me and offering a fair price in the first place.



  • SteveJShaw's picture
    Feb 15 Posted 5 years ago SteveJShaw

    Your headline caught my attention, and as I am this very minute thinking about using Groupon, I have signed into the SMT site to make this comment. 

    I agree absolutely with your observations about many businesses being inappropriate for them to benefit from a Groupon deal. I have two businesses one is a beauty salon for which I explored Groupon maybe 6 months ago and couldn't find an arguement to justify going with it. Although I accept the case that if we have spare capacity that much of the cost is already sunk so why not? My conclusion then and now is that they would be Groupon customers and they will hop to the next deal and that they are mainly price shoppers, the few we might be able to get to buy more on the day, or to rebook I beleived would be too small.

    The cost of being fully booked with Groupon zero profit clients when loyal full paying clients phone for appointments and can't be fitted in, etc' etc'. so a number of reasons why I think not appropriate for us at bijou. We are doing more existing client promotions, still offering new clients an attractive but (for us profitable) reduction on their first treatment and although there is no big rush, it is growing and in a sustainable way. The social media community building we are working at is very slow at the moment.
    Any thoughts? http/www/

    However, for my Business Coaching activity, I think that using Groupon stands a chance of working for everyone. I  hold one day planning workshops http;// one that 3 of my existing clients will attend, so it will happen anyway. The fee to attend would normally be £300, so the maths tells us with 50% off a voucher customer would pay £150, £75 to my Company and £75 to Groupon. I think I can set limits so I would say a minimum of 10 and maximum of 12. At £750 for 10 more delegates this provides a profit on the event, (the day delegate rate at hotel is £35 plus workshop materials total £40) but more valuable is the chance for the voucher customer to experience the event and decide based on that day any future relationship either through coaching or workshop attendance. As I type this I am not sure I need a minimum, but certainly a maximum so I can facilitate on the day.

    I haven't explored if there is a set up cost for a Groupon voucher deal, I have assumed it is just sharing the income from people who sign up?

    The points have been well made that anyone thinking of using a voucher scheme to bring in new customers needs to understand their numbers so they know exactly what it will cost them and measure the outcomes and impact on their business in terms of future profitability. I see Vouchers schemes as a client aqcuisition strategy and the existing customer promotions as a way of building loyalty and keeping customers.

    Good thread and posts, thanks :-)

  • Feb 11 Posted 5 years ago Kevin Sheppard

    Question: What stops you from using Groupon to advertise your offer and use their platform to reach thousands of customers, then giving the discount to people even if they don't present a groupon voucher.

    From my limited understanding of the system, there is nothing that prevents you from saying "No voucher? no problem!" and giving a new customer 50% off thereby avoiding the need to give Groupon a cut, thus adding some health to your profit margins.

  • Sep 14 Posted 5 years ago Jeremy (not verified)

    Business owner makes a bad decision and isn't prepared or able to turn one time clients into customers. And its groupons fault? 

  • Sep 13 Posted 5 years ago Ashley Baxter (not verified)

    One thing I'd like to point out is that the company offering the Groupon still has to offer great service. I have used Groupon's many times before and I have been a loyal and returning client to the establishments that gave me good serice when I used my Groupon! If I use my Groupon and you give me poor service, I won't be returning and follow the same pattern even if I'm not using a Groupon or coupon of any type.

    Too many companies have an awful product or service and then think Groupon is going to be the pixie dust that brings them a flock of new fans when they really need to be building a better foundation for their business. Group buying deals are not a good bandaid for the business owners who currently have a low volume of clientele due to not treating their customers well. There are a LOT of companies that fall into this category based off of my personal experience with Groupon. There are also plenty of reasons that people who use a Groupon don't return back to that business and some business owners need to start looking within instead of acting like the entire problem lies within the people purchasing their service.

  • Sep 13 Posted 5 years ago MikeG123 (not verified)

    I really feel like Groupon (and similar) sites are great for some businesses and terrible for others. You have to do the math ahead of time, get some good estimates and launch it at the right time. There is more to a large promotion like this than just direct income from the promotion.

    My business used it last year with great success and used Living Social this year with the same. Both times we used it almost like a press release- timed with a part of our year that we wanted to get the word out. We were very happy with the results both times.

    The only warning I can give businesses now regarding these types of sites is to do the math, complete with projections. As these sites get bigger, you may find that the increase in readership could lead to numbers that won't make sense. In that case, you can always cap the number of people who can take part in the promotion.

  • Sep 13 Posted 5 years ago Anonymous (not verified)

    OK Groupon makes us discount 50% or more and takes 50% of that. We have to pay the credit card fees and get around 22% of what we normaly would have. Your figures are wrong.

    I just did a Groupon and it was the worst decision I ever made for my medical spa. With overhead and paying staff, there was zero profit. Now, if these clients purchaced additional services or returned, it would have been worth it but this is not the case. The professional groupon clients confess that they only get spa services through groupon and go where the deal is. They refuse to pay full price and no way do they tip!

    What a waste of time! The staff is so upset and they avoid Groupon clients if possible. No one wants one on their books.

    Groupon is the worst business decision I ever made. Oh.... well I might have made a worse mistake. Never run a Groupon special for Brazilian waxing. It is like adding insult to injury.


  • Sep 8 Posted 5 years ago jmcgrath (not verified)

    What a wonderful article! I couldn't have said it better myself. Since you are advocating running your own offers, I would like to introduce you to a set of tools that do just that for a fraction of the cost of Groupon. I hope you don't mind us mentioning our business for the benefit of your readers. If you dissapprove, I certainly understand if you remove this post. allows you to use our tools to leverage the group buying craze while promoting your brand and running the offer within your website. It is the best of both worlds!

    We allow you to run your own "group offer" campaings. We don't dictate how many you must sell or at what discount. We provide all of the creative (html for email, branding of our tool to match your website, etc).

    Take a look at our site, I think it is exactly what you are advocating for!

    Thanks again for this great article. You said it all!


  • jgibbard's picture
    Sep 2 Posted 5 years ago jgibbard


    I think somewhere along the way you misinterpreted what I meant by "turn them into your marketing department."

    So let me see if I can kill your rebuttal now:

    What does a marketing department do?  The marketing department helps to create demand and drive new business.  

    Here's the definition of marketing: the action or business of promoting and selling products or services, including market research and advertising.

    One way to do that would be to... " treat [customers] like respected individuals the more they will enjoy your business and return, perhaps return with others, perhaps share their thoughts with others."   THIS is what we refer to as "Word-of-Mouth" MARKETING.  If you treat your customers well and they, of their own volition, choose to tell others, that is marketing.  It's just not marketing you can buy as easily as advertisements or mugs with logos on it.    

    Furthermore a customer is NOT a customer, period.  All businesses have good customers, bad customers and mediocre customers.  The good customers come back over and over and tell others about the product or service.  The bad customers are demanding, show lower margins and rarely bring in new business, in fact, they may dissuade new business and they are also more apt to complain publicly.  If you really believe that all customers are equal, then you have never been in business.  

    My point about marketing is not to turn your customers into shills for your product or service.  No one here is recommending that businesses hire a new sales force from customers.  My point is that providing an exceptional experience through incentives and customer service, such that current customers are inspired to tell others, IS a pathway to customer-based word-of-mouth marketing.       

  • Aug 29 Posted 5 years ago sbrussell

    Jeff, you are dead on! Check out the math in one of my prior post!

    Should you run a Groupon?

         Well... I think it depends on your businesses margins. I have run this simple Profit & Loss formula several times. It is a good indicator to see if you will be able to make a profit off of a discount. Here is a sample formula that I ran for a client last week:

                                Client  Groupon                 

    Sale price:              $10    $2.50 (w/discount)

    Cost of item:           $3      $3  

    Labor:                    $1      $1 

    Cost of goods sold:  $4      $4 

    Gross profit:           $6      ($1.50) 

    Overhead:              $4       $4 

    Profit:                    $2      ($5.50) 

    If the company sells 200 Goupons they will lose $1,100! They need to be able to make this up in return business, "profitable business!"

    In the above model, the original profit margin is 20%. They will need $5,500 in "full price" return business to break-even! The question is: Will they be able to have that much repeat business?

    Each time I run this formula, it never comes out in favor of the business: The customer "wins" by getting a 1/2 off great deal! Groupon "wins" by making 25% off each sale. The business "loses" by giving away 75% of the sale price!

    Isn't it interesting how everyone jumps on the band wagon and wants to be a part of something popular? Whenever there is a deal this good... somebody gets hurt. Business owner beware!

  • Aug 28 Posted 5 years ago Albert Maruggi (not verified)

    I agree with just about everything you said, especially about Groupon.  The area that most upsets me with this post and 99% of other social media advocates is this mentality highlighted in your words " If you have people walking in the door already, why not turn them into your marketing department."  

    Let me just kill this concept now.  A customer is a customer, period.  They pay money for something they want, the businesses role is to deliver at least equal value if not more if they seek that individual to be a repeat customer.  Customers are not and should never, ever, never be considered your businesses marketing department.  They are not employees, networks, gophers, lead generators.  They are customers.  The more you treat them like respected individuals the more they will enjoy your business and return, perhaps return with others, perhaps share their thoughts with others.  

    Let me use the company you so rightly admire for not discounting Apple.  Apple doesn't need to encourage me to share a like, bring a friend, or any other game to buy, love, share, and recommend their product.  

    Now for the reality.  the reality is more of us are average than well above average, that's a function of simple math.  And when you are average and need to make money to survive you do all kinds of stuff to make a living.  Hence, Groupon and all of the machinations around it and the buying network concept. 

    Most people don't want to be marketed to, whether they are a friend of mine or not.  So what would I want to take a customer, presumably someone I have a good relationship with and turn them into a marketer.  I highly recommend against it.  

  • jgibbard's picture
    Aug 19 Posted 5 years ago jgibbard

    Great link.  Very interesting article.  I'm still amazed at the number of people that defend Groupon so adamently as in the comments of the post that you linked to.  It's as if these individuals are protecting their ability to buy things at over 50% off, or maybe they just can't step inside the shoes of a business owner.  

  • thelindes's picture
    Aug 19 Posted 5 years ago thelindes

    Groupon has turned the nation into a coupon sucking group of people and it only benefits the buyer and the coupon provider. Very very very few services make some money with it, its a huge loss leader with the dream of repeat business that never ever comes. I actually wrote about the rice study that was done and it is really a joke the reality of what happens to a business that participates in a groupon that has a cost associated with providing business, ie a food cost, or a labor cost. Take a look at my article it highlights the good, the bad and  the ugly about groupon

    reality is, coupons are here to stay now, the funny party to me is the huge email database they have, so when they fold you will be spammed from hell when they sell the email addresses to third parties

    Gavin Linde

  • jgibbard's picture
    Aug 19 Posted 5 years ago jgibbard

    I have 0 disagreements with what you wrote.  Good points.  Your experience with the lake and how you reacted to it afterwards are a great testament to the potential positive outcome.  

    Newer businesses can use Groupon to spread the word far and wide.  Unique products will likely benefit because less people are actively searching them out and the net gain is potentially huge by reaching an audience currently unaware of the product or service.  

    I think the point I'd like to communicate is simply that a business should think long and hard about whether offering one is the right move.  In some cases it is, but in many (and I would argue: most) cases businesses are turning to Groupon without fully considering the potential negative implications.  That's not Groupon's fault, it's the same as any other bad marketing decision.  As many of the companies I've seen offering Groupons have very low margins and small budgets, I feel they are better off working on their core audience and existing customers.  Once a community exists it makes more sense to look beyond that for new customers.

  • jgibbard's picture
    Aug 19 Posted 5 years ago jgibbard

    Fair enough.  Good example.  What happened when the membership expired, did the people from the Groupon come back and renew at full price?

  • jgibbard's picture
    Aug 19 Posted 5 years ago jgibbard

    I completely agree with you, it is not Groupon's fault, the problem is the businesses are failing to retain customers.  I am not blaming Groupon for anything.  Groupon is a service and I feel there are better alternatives that businesses should consider first.  

    I think it is a poor use of resources to spend the money offering a Groupon when that money should be going towards building an environment where customers come back over and over.  If everything is ducky and the business is growing and has some money to burn offering a Groupon to expand their reach, that is fine.  The problem is many businesses turn to Groupon to "get people in the door" because it is slow and then don't plan for how they are going to turn those customers into loyal customers.


  • jgibbard's picture
    Aug 19 Posted 5 years ago jgibbard

    That's exactly what I'm advocating for.

  • jgibbard's picture
    Aug 19 Posted 5 years ago jgibbard

    I see your point and I do think there are some businesses where it makes sense.  The spa example is a good one.  However while they are not technically losing money in that Groupon transaction, look at what Groupon has caused in the spa industry.  There is virtually no reason to ever pay full price again for a spa treatment.  As long as you don't mind switching venues, you can just keep buying new Groupons for spas.  The Groupon model has effectively reduced the average price of services in the spa industry by creating a half priced option that is virtually always available.  

    It certainly makes more sense than for restaurants but there are still other options that don't reduce average sale price.  That spa could just give their customers 30% off on next visit.  It would build loyalty and they could compete in the full priced space rather than the deal space.   

  • Aug 19 Posted 5 years ago Anonymous (not verified)

    It's good to see you're sticking by your point but I do think there is a crucial difference between a business that has fixed cost and undersubscription and say a restaurant which has a lot of fluid cost. For the latter, Groupon et al make no sense although they are great for consumers (of which I am one).

    However, consider places like massage salons with the rent to pay (fixed) equipment to amortize (paid upfront) and ... a few drops of oil maybe. When these business are heavily undersubscribed Groupon is a great way to reel in new customers since all costs have been sunk anyway so you're not losing any money.

  • jgibbard's picture
    Aug 19 Posted 5 years ago jgibbard

    Again, to be clear, I'm, not blaming Groupon.  I presented my case for why I think it's a bad idea. If people choose to offer a Groupon, more power to them, I hope it works out, but if it doesn't the blame is on them for not considering whether Groupon is a good idea or if there is a better, more cost effective alternative.

    You mentioned recruiters. I don't feel like recruiters are a good comparision to Groupon.  I think recruiters are more similar to the alternative strategy I propose.  A good recruiter doesn't just go out and blast a job posting to anyone and everyone looking for a job, they find people that match a profile.  Recruiters often leverage their network to get the exact right targeted fit for a company. Businesses that use Twitter and Facebook to build a following will need to leverage their network of existing customers and seek out individuals that fit the target audience they want to build awareness with.

    To summarize, I'm not disputing what Groupon has the potential to do if all the circumstances are right, I'm saying that, in general, there are better, more cost-effective and more targeted alternatives that have a greater possibility of long-term financial gain.  

  • jgibbard's picture
    Aug 19 Posted 5 years ago jgibbard

    I agree with everything that you wrote.  To be clear, I don't think Groupon is entirely bad.  Groupon DOES work better in certain industries and it is a great way to get big exposure for new restaurants.  I think many businesses just hop into the Group buying game without fully considering the implications. 

  • jgibbard's picture
    Aug 19 Posted 5 years ago jgibbard

    Is Groupon or what I've proposed as an alternative a more targeted approach?

    Is Groupon or what I've proposed as an alternative a more cost-effective approach?

    You said to stop thinking of Groupon as a sales tool and to start thinking of it as an advertising vehicle.  So let's call this advertising.  I'm curious what you think the purpose of advertising is?  It's to generate sales.  Good advertising is targeted, Groupon is a blast.  Good advertising maximizes ROI,  Groupon is more expensive than offering a straight 50% to existing customers.  

    Yes, there are examples of businesses that benefit from offering a Groupon.  Yes, Groupon can help you reach a large number of people.  Yes, Groupon may lead to repeat business.  And yes, Groupon will allow you to raise awareness more quickly.   

    So, if you want to offer a Groupon...offer a Groupon.  If you want to use it as marketing, use it as marketing.  If you read through my entire post, you'll see I didn't once advocate for printed coupons, tv ads, radio spots or anything else. 

    The only thing I offered as a better alternative is to build your business starting with your customers first.  Incentivize and reward your customers to bring in new people.  I also recommended that a Groupon could be used creatively such as offering a very small amount just to get people in and then going above and beyond.

    I don't have stock in Groupon or any other group buying platform.  I don't have a horse in this game.  My perspective is that it's not the best use of resources, you are free to disagree with that.  I'll be advising my clients to focus their time, money and energy elsewhere.  

  • jgibbard's picture
    Aug 18 Posted 5 years ago jgibbard

    I'm not blaming Groupon,  I'm stating a case for why I think businesses should think twice about offering a Groupon.

    My point was that using a Groupon is a specific marketing decision.  

    It is a decision to blast out a 50% off coupon to anyone that is looking for a deal.  This is the target audience, they're on a daily deal website.  In order to reach this demographic you must forfeit approximately 30% of the remaining revenue from the sale of that Groupon, leaving you with 35% of the cost of product or service.  That's $35 for every $100 worth of product or service. 

    If you were to decide that you wanted to offer a discount, I would argue that it makes more sense to offer 50% coupons to your customers and give them one coupon for a friend.  That's $50 for every $100 worth of product or service and it comes with a referral.  You net 30% more money and your discount is targeted to existing customers and their network.  Do that, create loyal customers and keep building outward from your community.        

    Unless the business has fixed costs, like with a Vineyard or is trying to clear out old stock items, Groupons don't make financial sense.

    I love them as a customer because who doesn't want 50% off?      

  • Aug 18 Posted 5 years ago Anonymous (not verified)

    Offer YOUR CUSTOMERS 50% off to bring in someone new (who will pay either full price or a slightly reduced price).  This way you are rewarding your existing customers with a discount AND getting new business at full or nearly full price.  They already come in, they already like you, why not use that to your advantage?


    Right on. We're just beginning to start trying to explain the power of local affiliate marketing to the same type of small businesses who utilize Groupon or other group buying sites. Take the coupon or first time discount they're already giving and split a portion of the discount as a commission to affiliates... instantly creating a salesforce - combine that with their own loyal followers (both online and off), and you've got something that can really turn some revenue. Teaching them how to empower their own loyal fans and customers to share their brand and earn when they do... rather than giving HUGE %'s of their profit to these sites who do the sharing for them. It's a stronger share and a stronger sell when someone they're already connected to does the sharing.

  • Aug 18 Posted 5 years ago NickBowditch

    Good article.

    What about running your OWN Groupon style campaign? With your existing (or new) customers and promoting and selling a product or service that you know you make a pretty good margin on?

    You could just run it within your own networks, blogs, social media channels or whatever - at a time and on a date that suits YOU.

    You control the game. You control the profit margin. And you either take on the new customers (hopefully) or at least give your existing customer base a well-deserved reward.


  • Aug 18 Posted 5 years ago Tom Chikoore (not verified)

    Well, said Jeff. Since last year we have been talked to local businesses that have run Groupons (and other daily deals) and we hear the same thing over and over - they clearly spell out the disadvantages that you have spelled out.  

    Here is where I disagree with your overall premise: I would not go as far as saying the Groupon is "horrible" for businesses.  Groupon is great for CUSTOMER ACQUISITION and as we all know,  customer acquisition is expensive.  Customer acquisition is necessary for local businesses to grow their businesses so Groupon has a role to play in helping local businesses acquire new customers for growth. Local businesses should not blame Groupon. Instead, they should focus on customer retention activities AFTER acquiring customers via Groupon. The majority of local businesses have never focussed on customer retention , it has been a problem that has plagued local businesses for decades and all Groupon and others have  done is just amplify the problem (they have NOT caused it). An analogy here is that you do not put an ad in the paper and expect customer retention - customer retention is an activity that you undertake after the customer walks in the door - and we don't blame newspaper do we? At Infinite Customer, , we have built a product that takes over where Groupon and other daily deal companies leave off - we have built a solution  specifically for local businesses that helps them retain their daily deal buyers and turn them into profitable repeat customers. When it comes down to it, it is a business fundamentals problem on the side of local businesses, so let's not pile on Groupon, they are just providing a customer acquisition service (at a cost that local businesses are willing pay).

  • Aug 18 Posted 5 years ago Jenni (not verified)

    Kelly, I completely agree!

    I, too, have become a loyal customer of at least 5 businesses because of a groupon that I've purchased once. I routinely go back to certain businesses and pay full price based on trying it at a discount the first time I went. And it's not just one type of business, either... personal care, entertainment, restaurants... they've all been places I've become quite loyal to.

    Not only have I become a loyal patron of these establishments, but I've also used word of mouth to get others to try it. For example, my family bought a groupon to try a wakeboarding class at a local lake recently. We tried it and had a blast. A week later we went back... and took more people with us. Not only have we been back multiple times, but those that we took, and yet others that we didn't take, but instead told about it, either by phone or by social networking sites, have also become loyal patrons and returned more than once... all because we bought ONE groupon. That ONE groupon we purchased brought them over 20 new customers who paid full price, on at least TWO visits, with hopes to return more in the future. I'd say that's a success.

    The sample size for the Business Insider study is ridiculously small, to the point that it's laughable. They have such a small sample size, and yet there are so many businesses that use groupon, which almost makes me think they went with such a small sample size to skew the results in their favor.


  • Aug 18 Posted 5 years ago MS (not verified)

    I agree with most of your points but there are a few exceptions where Groupon is a great deal. I did PR for a company that was trying to increase membership. We were doing pop-up events giving away memberships that would normally cost people $35. If potential members paid attention they could have gotten free membership at a bunch of events. We offered the groupon for 1/2 off membership ($17.50) and got a bunch of people to sign up! We didn't make much on it but it was a lot more than 1/2 of $0. With my current company Groupon would never work. Our services are much too valuable to give away.

  • Aug 18 Posted 5 years ago Jenni (not verified)


    I respectfully disagree... Groupon does build customer loyalty in many cases, especially if you have a business that offers a totally unique product or service. For example, here we have a "cable lake" that allows you to do watersports like wakeboarding with a cable (instead of a boat) around this small lake. We purchased a groupon for it, and had never heard of it really prior to that. Following that, we went and had a fantastic time! After buying one groupon, we have gone back on 3 separate occasions, paying full price, because we had a great time.
    Furthermore, there is word of mouth involved. We went to the cable lake, and had fun. Each of us who went told at least 2 people about it. We also all posted on facebook about how fun it was, and posted pictures representing that. From there, some of the people we told began going regularly, at full price, and started telling their friends. The business owners have acknowledged how much business has been brought in by people who tried it once with the groupon, but started coming back because they had so much fun.
    And yes, if you don't have a unique product or service (like if you're a salon or boutique), customers will probably return to groupon instead of returning to you. But consider this: I have bought 3 separate groupons for pedicures. I went to three separate locations, giving groupon my business, not the pedicure places. However, after going to three different ones, I realized that the second one I went to offered the best service, and I began going back to them for my pedicures, with or without groupon. Did I initially take my business back to groupon? Yes. But in the long run, my business ended up going back to the business that offered the best service for the best price, rather than continuing to go back to groupon.
    I don't think groupon is right for every business, and I also believe that offering a benefit to existing customers that bring in new customers is a great way for a business to generate a larger customer base, like the article you posted suggested. However, I also think that for a newer business or one that is hoping to re-new interest in the company, Groupon can be a great way to regenerate that interest. I think it's up to the individual business whether it is right for them or not.
    However, that's just my opinion.

    I respectfully disagree... Groupon does build customer loyalty in many cases, especially if you have a business that offers a totally unique product or service. For example, here we have a "cable lake" that allows you to do watersports like wakeboarding with a cable (instead of a boat) around this small lake. We purchased a groupon for it, and had never heard of it really prior to that. Following that, we went and had a fantastic time! After buying one groupon, we have gone back on 3 separate occasions, paying full price, because we had a great time.
    Furthermore, there is word of mouth involved. We went to the cable lake, and had fun. Each of us who went told at least 2 people about it. We also all posted on facebook about how fun it was, and posted pictures representing that. From there, some of the people we told began going regularly, at full price, and started telling their friends. The business owners have acknowledged how much business has been brought in by people who tried it once with the groupon, but started coming back because they had so much fun.
    And yes, if you don't have a unique product or service (like if you're a salon or boutique), customers will probably return to groupon instead of returning to you. But consider this: I have bought 3 separate groupons for pedicures. I went to three separate locations, giving groupon my business, not the pedicure places. However, after going to three different ones, I realized that the second one I went to offered the best service, and I began going back to them for my pedicures, with or without groupon. Did I initially take my business back to groupon? Yes. But in the long run, my business ended up going back to the business that offered the best service for the best price, rather than continuing to go back to groupon.
    I don't think groupon is right for every business, and I also believe that offering a benefit to existing customers that bring in new customers is a great way for a business to generate a larger customer base, like the article you posted suggested. However, I also think that for a newer business or one that is hoping to re-new interest in the company, Groupon can be a great way to regenerate that interest. I think it's up to the individual business whether it is right for them or not.
    However, that's just my opinion.


  • Aug 18 Posted 5 years ago Gregory A. Bufo... (not verified)

    Great article and very insightful.  As a physician, I have seen a number of my colleagues jump into this business model without really thinking about the ramifications.  Simply getting warm bodies into a medical practice is not the goal.  The goal is to get the right warm bodies. 

    That being said, I do not participate with Groupon and just try and incentivize my clients directly.


    Great article!

  • pbforsberg's picture
    Aug 18 Posted 5 years ago pbforsberg

    Good point about Groupon -

    One of our clients have offered it in their business and have had good results.

    However, let me quantify a little bit. They have a boat that transports passengers. It sails on a regular schedule so fixed costs are already accounted for with existing business.

    The boat usually sails at 45% capacity - the Groupon has helped increase payloads to 85%. So far, so good -

    HOWEVER - the season is not yet over so the ability to track and measure the actual sales/ redemption rates are not completed. Once this is done we will have a "Good" handle on whether it was profitable or not.

    I would imagine, in a business that has relatively high COG (Cost of Goods) expenses, margins will be quite tight unless the business owner knows the new customer acquisition cost, annual value of a customer, lifetime value, and redemption rate of the Groupon. (we are currently building that data for our clients)

    I have asked other business about this in regard to Groupon and all I have gotten is the "Deer-in-The-Headlights" look.


    We have a couple of restaurant clients we do marketing for and have been steering clear of Groupon. Instead, we promote specials, include desserts, do birthday promotions to existing clients via a weekly email campaign. Business for them is up an average of 21% week to week comparison over last year while others are starving and offering 2-4-1 specials, and I assume participating in Groupon.


    Thanks for the post -


  • Aug 18 Posted 5 years ago Ryan (not verified)

    Jeff's point is right on target.Playing with Groupon degrades your brand, your core value promise and the quality of your customer base. What Groupon does is easy to replicate. Hire a college grad and have them build a social network for your business and distribute exclusive coupons.

    Or better yet, give your customers a free meal for bringing a friend (they'll end up treating most of the time). This way you extend the brand by creating a brand ambassador and avoid the garage sale crowd.

  • Aug 18 Posted 5 years ago Kelly Rusk (not verified)

    Did you READ the Business Insider "study" 50% of SIXTEEN businesses said they wouldn't do it again. That is NOWHERE near a statistically relevant sample and referencing it hurts your credibility.

    I could easily find 16 businesses that said they would re-use Groupon. If I published a study that said 100 PER CENT of businesses would re-use Groupon would that have any warrant?

    The value of Groupon is the HUGE audience it gets your business name in front of. Stop thinking of it like a sales tool and instead like an advertising vehicle and it makes sense. The beauty of it is you can actually MEASURE it's effectiveness in terms of getting people in the store. You can't do that with a newspaper ad--which is something many small and local businesses still do.

    It's not for everyone, and there needs to strategy and thought put behind its use. (Make sure you know the terms, don't bankrupt your business) but there's no denying that it can be a very effective tool for getting the word out.

    Not all Groupon buyers are bargain hunters only. Everyone loves a great bargain and I can name at least five businesses that I've become a loyal patron of because I bought a groupon once. To say it's a bad model is a little ridiculous. There are tons of happy and successful businesses who have used it effectively, they just don't make the news, because it's nothing unusual.


  • Aug 18 Posted 5 years ago Anonymous (not verified) Groupon can be beneficial, it just works better in certain industries and situations than others. For instance the hotel industry does this everyday with most of the individual sales they make. i.e. expedia and travelocity basically do the same thing. And having worked in hotels for many years they still make money from this sale plus the add on sales where people spend money in the different outlets. Hotels also limit these sales to make sure they get peak rates when demand is high and supply is low. Air fares are done the same way Groupon also works well as an introductory offer for w new business and gets great exposure. Most restaurants do this when they open anyway and Groupon on is a good way of getting in to an instance market. I'm not saying that Groupon is perfect. If you run a spa and you offer a discount one week and your next door neighbour does the same thing the following week but there isn't enough demand to fill both then you are doing nothing but de-valuing your products/services. Also if supply outstrips demand unless you differentiate and offer a superior product & service (ie apple) then you have to question being in that market.
  • Aug 18 Posted 5 years ago Mike H (not verified)

    Apologies, I only saw the first part of your reply. In response to the second reply:

    From what you’ve showed me 46% or so said they would consider using a Groupon again. Correct me if I'm wrong but 46% repeat business is pretty good for a transactional organisation.

    The organisations who say ‘worst decision I’ve ever made’ I'm sure you can find evidence of this for every service offered to businesses. How many people complain, at length, about recruitment as a service? They take a 15-20% fee for their work but it seems to be a business model that works. People are aware of the related costs, pitfalls etc but still use them. Why? Because it’s a service that works, for some people. Not everyone, but enough to keep a massive multi billion industry afloat.

    I agree that building a community and offering them the discount and keeping the 30% that Groupon takes would probably make you more money in the long run, if you have the patience to build a business by word of mouth alone (you’re argument doesn’t take into account marketing or advertising so we’ll stick with that). Many don’t see this as the best way to build a business full stop; hence we also have companies dedicated to marketing, PR, advertising etc... all services that could replace Groupon’s 30% fees with no promise whatsoever of people through the door of your business. If you actually have a strong, viable, attractive business and you’re confident that all people need to do is find you, Groupon seems like a great option.

    I can’t use figures to argue against something you haven’t provided figures for! I'm talking about what a company can realistically sell a product for without losing money. Some services (dentistry for example) I'm sure can afford to offer 75% off their usual prices. I suspect they also slim down their offering for a Group on deal (what would have lasted an hour for 100% only lasts 30 mins for the 35% they get from a Groupon, meaning they only ‘lose’ 15% to Groupon). Again, if it isn’t viable to a business it is them at fault for not understanding what they are getting into or managing the risk properly.

    You just can’t blame Groupon for some people not understanding the business risks (which are associated with any service).

    Your last pint is correct; that is a great model to work from. If I was running a business I would use that over Groupon time and time again. But I don’t run the business using Groupon, nor do you, and it’s only these people we can blame for the failures, not Groupon itself. 

  • Aug 18 Posted 5 years ago Mike H (not verified)

    That wasn't my point. And, actually, I suspect some companies can afford to offer something for £35 that they retail at £100. Especially as it's not a permanent offer. Also, the number of companies who offer the same groupon week after week; I'm assuming they'd have gone bust already if they were making a loss. 

    My point was that if a company doesn’t tie offers like this into a business plan, where they either break-even or make a small loss at the expense of exposure/marketing and future repeat sales then there is a problem with the organisation. 

    Groupon offers a service, this service has associated costs, which I'm guessing are in the contract and explained upfront, if a business uses this service without understanding the associated risks/rewards then, to be frank, the company deserves to go bust. 

    If I owned a company and spent £100K on advertising and I only made £35K sales out of that, I'd be in a similar position (worse, in fact). 

    Your article is essentially blaming Groupon for poor company practice. Any service like this initially is a risk, but what in business isn't until it’s tried and tested? 

  • jgibbard's picture
    Aug 18 Posted 5 years ago jgibbard

    One more thing: Do me a favor and tell me what percentage of businesses can actually afford to offer 65% off regularly?  Here's the math: 50% loss in gross revenue to the customer and another 30% of the remaining 50% in gross revenue to Groupon totalling 65% less gross revenue.  

    To put it simply, a company sells something for $100, how sustainable is it for that company to sell it for $35.  Can they possibly break even or generate even a tiny profit?  Even furniture companies?

  • jgibbard's picture
    Aug 18 Posted 5 years ago jgibbard

    I agree that the first pie chart is off.  Here is a more accurate one:

    Beyond that let's get REAL, there is a reason why more than 50% of businesses say "NEVER again" after offering a Groupon.

    Or "Worst decision I have ever made"

    Financially it simply does not make sense especially when you compare it to the alternative that I describe: building a community and offering them the discount instead and keeping the 30% that Groupon takes.  This isn't a jumping on the bandwagon article, this is basic math.  What sort of evidence would convince you beyond the basic math that it's not a good financial move and that most businesses that run a Groupon say they wouldn't do it again?

    You may not be the one writing the article but you ARE commenting, so unless you have data to contradict the claim I'm making I'm not sure how you can claim Group-buying creates "many repeat customers."  

    How about this: "Only 1% of Groupon customers become long-term merchant customers..."

    Finally tell me where I'm getting cost and profit wrong?  If I can have new customers come in at full price and repeat customers come at a discount (thereby incentivizing repeat business) OR I can offer 50% off to anyone AND THEN 30% of the remaining 50% to Groupon...which is the better profit model for the business?  Who is MORE likely to tell others about a restaurant or spa: the one the goes all the time, follows on Twitter and Facebook, and just got an awesome new discount OR the daily deal shopper that comes in and spends $5 more than the Groupon?  

    I await your response. 

  • Aug 18 Posted 5 years ago Mike H (not verified)

    I think this article makes a number of dangerous assumptions. Even as basic as the difference in cost and profit. I'm going to make an assumption myself that any company getting involved in Groupon has worked out the point where they are actually losing money on their products (rather than breaking even). If a company hasn't done this then their problems are a lot bigger than their use of Groupon as a marketing tool. 

    Secondly, not all businesses are like Apple where people buy into a brand and are willing to spend over the odds (there's no arguing with that!) for a specific, desirable, product. A lot of companies over inflate their prices with the pure aim of seeming like you are getting a constant bargain from a sale (I direct you to nearly all bed and furniture retailers as well as many tech companies). Let's not forget that a portion of society will only buy what they perceive as a 'bargain'. If you're willing to ignore that market (which i can only guess is actually quite a large chunk) then, again, you either have an amazing business like Apple or you have wider problems. 

    Thirdly, the number of people who buy a Groupon isn't representative of the number of people you get to directly advertise to on a daily basis. I have been prompted to return to my favourite restaurant (at full price) after seeing a Groupon voucher, missing the buy date but going anyway. For companies that work on word of mouth, as you were describing, even if someone has purchased a voucher, it's not to say they haven't spoken about the experience which has brought in their friends or family members at full price. 

    Finally, your first pie chart makes no sense and your arguments are not backed up by any evidence. Neither are mine; but I'm not the one writing articles without all the facts to hand. Groupon may be a company in crisis; jumping on the bandwagon isn’t going to help what is actually quite an innovative idea with many repeat customers (both consumers and service providers).


  • Aug 18 Posted 5 years ago Anonymous (not verified)

    Hi Jeff,


    I completely agree with your article, I like the simple way you have put the thoughts across, some people just dont see it like that, they get caught up in the hype...

    what about this: appears to be groupon with a twist and seems more sustainable for retailers and customers... any thoughts?



  • RobbinBlock's picture
    Aug 17 Posted 5 years ago RobbinBlock

    Create a product/service people want to buy, promote it strategically and well, and you may not need to go to the strategy of last resort. You're giving away your hard-earned cash. Coupons are advertising; nothing more, nothing less. If you do decide to use them, make sure you're getting a good ROI. They work better in some situations than others. Visit my blog to get more pros, cons and tips on couponing.

  • jgibbard's picture
    Aug 17 Posted 5 years ago jgibbard

    I don't have figures on that Mary, but I'm also not making the case for those methods either.  

  • jgibbard's picture
    Aug 17 Posted 5 years ago jgibbard

    Can't say I agree with you at all Anonymous2.  

    First of all, creating an ad, whether it is in print or digital is measurable if you do it correctly; most people just don't do it correctly.  Additionally, this post makes no claim about the effectiveness or lack of effectiveness in any other form of advertising or marketing.  This post is about the very clear case that group-buying is a poor use of resources especially when compared with building a loyal following instead.

    To your point about "being clever and converting them to loyal customers" and running a good business vs an average business, my argument is only validated.  Good businesses shouldn't need to give away upwards of 65% of revenue.  Those same dollars could be spent in-house making a better experience for those that buy full priced goods and services or incentivizing current customers to bring in new business.    

    Simply stated, group buying is a lazy and ineffective way to use capital to generate new business compared with the alternative of expending emotional capital to increase the likelihood of positive word-of-mouth.

  • Aug 17 Posted 5 years ago Paddy (not verified)

    Totally agree with the article ... Deal of the Day campaigns like Groupon allienate existing clients, destroy brand and impacts the long to medium term pricing margin of the business.  A business has to explain to loyal customers why they only heard of the deal through a third party (e-mail from Groupon), the number of cheap coupons issued normally impacts on the ability to provide a quality service (hence brand destroyed) and it is hard for the business to start getting normal prices again as the mind set with customers (old and new) is that the business is prepared to give steep discounts si way stop now it always!


  • Aug 17 Posted 5 years ago Charleston Creamery (not verified)

    Unfortunately, we are building consumer loyalty to Groupon & NOT  to the individual business:(

  • Aug 17 Posted 5 years ago Anonymous2 (not verified)

    If you buy an ad in a magazine you get no cash back for your trouble and you also have no way of really knowing how many people actually noticed your very expensive ad - we all know the mags and papers inflate their readership figures. And did their reader even see the page you were on? With a daily deal site you know what sort of exposure you are getting - they push your brand for the day to their entire database, targetted to your local area - AND you get some pocket money. You may absorb some costs when people redeem their deals (but not everyone does - how many giftcards have you forgotten about till after they expire?) and if you are clever, when they walk through your doors you convert them to a loyal customer, or inspire them to recommend you to their friends. Businesses that are worth paying full price for will get those people back. Run a good business? Daily deal sites could open a hole new world for you. Run an average business, or not sure how to convert people, at worst it's a better value ad than one in traditional media, with a cash-in-hand rebate.

  • Aug 17 Posted 5 years ago Mary (not verified)

    You have some valid points, but what is the cost for print coupons? or for any print adveristing? What are the percentages of new customers it brings in?

  • jgibbard's picture
    Aug 17 Posted 5 years ago jgibbard

    You are correct, and as others have pointed out my math regarding Groupon in particular is incorrect.  I meant to use Groupon to stand for ALL group buying sites (with some small exceptions).  The math I used was actually based on "Yelp deals."  From what others have said, Groupon is even worse.  Your comment further exhibits the point.  These daily deal sites are bad for business and this is likely going to be their downfall.  Of course customers love them, but that's not a reason to keep offering it as a business.

    Thanks for the comment.

  • jgibbard's picture
    Aug 17 Posted 5 years ago jgibbard

    I wouldn't say that ALL daily deal shoppers are bargain hunters, but I'd say it is more appealling to bargain hunters thereby increasing the likelihood of the shopper being a deal seeker.  I agree that businesses need to be more discerning, and a good way to start is to do the math on daily deal doesn't add up for businesses.  I think very few businesses will see long term success from a group-buying strategy.

  • jgibbard's picture
    Aug 17 Posted 5 years ago jgibbard

    You are correct that the pie charts are off.  Now that you mention that I can see your point.  Hopefully the idea came through that Groupon and other daily deals are not worth it.

    To summarize, acknowledging that Groupon's cut is 30% not 15%:

    • The customer pays $20, gets $40.
    • The business receives $8 for $40 worth of product or service, after giving Groupon the 30% cut ($12) and $20 to the customer
    • Groupon makes off like a bandit with $12 for facilitating this "good-for-customer / horrible-for-business" transaction.
  • jgibbard's picture
    Aug 17 Posted 5 years ago jgibbard

    John I see your point, however, you missed several of mine.  You talked about alternative spends to bring people in the door.  My recommendation is to build a community, something that costs only time and emotional energy.  I agree that a Groupon is less expensive than the other methods that you mentioned.  My point is that it takes even less money to enrich your relationships with existing customers and have them so excited about your product or service that they tell others.  Let your customers market for you.    

    Furthermore, Daily Deals ARE meant to be money makers.  All marketing is supposed be a money maker.  If your marketing has a negative ROI, it's bad marketing.    

    Finally, 62% of deal buyers being "New" business doesn't REALLY help all that much if the business nets less than 50% of that revenue.  I don't find that the data presents a compelling case FOR group-buying, I think it provides a good case AGAINST group-buying.     

  • Aug 17 Posted 5 years ago Anon (not verified)

    This was a very interesting article. Restaurants are either using a Groupon method to bring customers in or turning to loyalty programs.

  • Aug 17 Posted 5 years ago Barchemist (not verified)

    Groupon SUCKS! I am not sure where you are getting the math though. I just ran a Groupon and this is the math:

    I did a $10 for $20 at a restaurant. That means that Groupon and I split the $10. So I get $5 and Groupon gets $5. Then I absorb all of the hidden fees such as credit card processing etc. I now get about $4.50 for a $20 dollar voucher for some cheap-ass, non-tipping, deal seeking leech who will never be back into my restaurant. Instead, Groupon's swarming locusts head next door to my competition when they have a Groupon. Then on to the next deal. They have no loyalty except to Groupon themselves. They are deal seekers, and now can afford to go out twice as often as before. 

    They look at the menu, price it out and spend maybe a dollar more than they need to fill out the amount on their voucher. 

    Groupon will work for service businesses such as a gym or yoga, because these "extra" customers that are brought in by the "deal" aren't expending product, just space which is a fixed expense and is already paid for.

    Ultimately... these "group buying" sites suck for most businesses, but business owners will have to find out for themselves before they find out the hard way like I did. 

    Groupon screws you!

  • SalesAddiction's picture
    Aug 17 Posted 5 years ago SalesAddiction

    I have never bothered to do the math but I've wondering for some time how this can make money for retailers. It just felt bad.  Thanks for putting this out there.

    It seems to be one of those things that people jump simply because it's trendy.   

  • Aug 17 Posted 5 years ago Dale Little

    I think your points are very valid.  Unfortunately, for a variety of reasons, many business owners jump on each marketing band wagon that drives by.  There really is no easy way to build a business, but focus on existing connections and customers is much more cost effective and (with consistent effort) highly profitable.

  • Aug 17 Posted 5 years ago Bethany (not verified)

    Your points are valid, and others have voiced the same opinions, but I think labeling all daily deal purchasers as bargain shoppers who aren't loyal and will never return is not 100% true. I think the advice to give is that businesses need to be more discerning. Daily deals aren't for every business, but it might make sense in the long run for some.

  • Aug 17 Posted 5 years ago Anonymous (not verified)

    You couldn't have said it better! I can't stand these daily deal sites and think they are ruining business.

  • Aug 17 Posted 5 years ago Jeremy Potvin (not verified)

    You make some valid points. Offering a group buying deal can be a bad experience for the retailer if enough thought isn't put into your deal first. 

    We have a group buying platform (fashion and lifestyle niche, and we take a discounted cut compared to industry) as part of our services and have run into these same problems. Our mandate was to bring our clients new, loyal cutomers; as well as, introduce our members to these new retail stores by means of a great offer. Here's the trick we came up with that has our clients experiencing an average upsell of 35% over face value of the coupon - we insist that our retailers let the customer use two coupons per purchase. Why does this work? Let's say the offer is $25 for $50. If the customer can use two, they generally buy two. Now they have $100 to spend in the store. This creates a situation that benefits the retailer most times: they either find something worth exactly $100 or do one of the following - use the coupons in two seperate visits and spend the extra money each time, or find something worth over the $100 and spend the extra money in the single visit.

    How does the consumer benefit, besides the deal they just received? By what we tell our clients - the most important thing for the retailer to do in to prepare the staff properly. They need to be capable and know how to treat these new customers like GREAT customers. If you treat them like bargain hunters when they arrive, that's what they will be! I believe that literally everyone on earth would rather have a deal than not - even with Apple I get a 5% discount because I am a business customer... I LOVE it! Who wouldn't? So, knowing that simple fact, and looking at it as an opportunity rather than a problem, provides you with a situation that can and will be a positive experience for your business. Treat your new customers right, and they will come back!

  • Aug 17 Posted 5 years ago Elphin Magic (not verified)

    The points you make are excellent, and good advice for most businesses.

    However, your pie charts are completely off... Groupon and the Business get part of the 50% the customer pays, not the "other" 50% that would make the pie total 100%.  You'd be better off outlining half the pie in the "customer pays" color, and then breaking down which part of that 50% goes to which party, leaving the other half the pie completely empty to highlight that no one gets that $$.  (Although, I suppose it could be said that the "customer keeps this half in their wallet").

    I do think you are spot-on in your text-based logic, though.

  • jgibbard's picture
    Aug 17 Posted 5 years ago jgibbard

    Wow!  I had no idea.  I looked into Yelp deals and they took 15% so I assumed that they were similarly priced with Groupon.  Thanks for pointing it out.  That makes my case even stronger!    

  • Aug 17 Posted 5 years ago Barry goldlist (not verified)

    Groupon seesm to facing osme hurdles these days. Bad publicity, possible illegal activity in Alberta. Can the holiday be over? I also wrote a blog pst on the group buying experience a shor time ago.  Check it out at

  • Aug 17 Posted 5 years ago Anonymous (not verified)

    I agree with Anonymous #1... It's not 15%.  It is actually 30% 

  • Aug 17 Posted 5 years ago Beth McKenzie (not verified)

    Agree with article whole-heartedly. Might take a step further and say we are starting to see small businesses in very competitive markets put themselves and each other out of business via the groupon fad, or at least out of the 'green' as they try to chase volume. This model does not create a sustaining atmosphere. Does not make sense for most businesses.

  • Aug 17 Posted 5 years ago Kent (not verified)

    100% agree. In fact, there are many ways to get customers, reducing price to get customers is the most stupid way. Groupon creates price way in the market and create unloyal customers.

  • Aug 17 Posted 5 years ago John Lynch

    Groupon (Daily Deals) make allot of sense for allot of SMBs.  Start with some alternatives to bring clients in the doors during tough economic times.  $1000 for a billboard, $800 for print in a mag or newspaper, $300 a month for search etc....Unlike these options a daily deal is run with no upfront or out of pocket expense which appeals to many SMBs. 

    Daily deals are not meant to be used as money makers but as marketing and advertising.Take a look a recent data:

    38% were already frequent customers of the company.  In other words, existing customers, loyal customers, are getting significant discounts to buy what they might have bought anyway.  The added value is minimal, it erodes margins and potentially conditions the loyal customers to become discount seekers. On the positive side, 31%, are brand new business (new customers who weren’t aware of the company before the deal plus those with some brand awareness), 27% were infrequent customers, and 4% were former customers. That's at least 35% and arguably 62% of deal buyers that represent NEW business.  This is compelling data, and these are the customers that provide what the daily deal model is supposed to provide: bringing you new customers to try your business or products out.  Now it's up to you to do a great job in meeting their needs and satisfying these new customers.  And not only satisfy them but satisfy them to the level that will allow you to convert a percentage of customers to long term, loyal customers.

  • Aug 17 Posted 5 years ago Anonymous (not verified)

    Little correction - Groupon don't just take 15% - they take 30%+ commission.. 

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