The Proof that Groupon Damages Your Business’s Reputation

PaulFabretti
Paul Fabretti Digital and Social Media Lead, Telefonica Europe, Telefonica

Posted on September 13th 2011

We all seem to have a bit of a downer on Groupon. For various reasons, there seems to be a morbid fascination with bringing down what is (or rather, was) essentially the global leader in local deals. Everything seemed fine – deals initially presented a wonderful opportunity to get something local to us (and we probably knew of) for a lot less. But then everyone jumped on board and websites with a naturally local geography began delivering local deals on top of the global deals.

It all went a bit pear-shaped, amidst complaints of providers having to give too much money to Groupon, not making any money out of the deals (many claiming they were losing money) and customers claiming that their deals were not being honoured (as a result of the loss-making nature of the deals).

One of the big unknows is one of reputation though – Groupon’s is all over the place (thanks, in part to the recent departure of the Group Head of PR). For the first time, thorough research has been carried out analysing the reputational impact of the businesses that take part in deals – and it doesn’t make for good reading.

The research, carried out by John Byers and Gerogia Zervas from Boston University and Micahel Mitzenmacher from Harvard University studied over 16,000 Groupon deals in 20 US cities between January and July this year. They monitored each deal every ten minutes or so to determine how sales varied over time and also counted the number of Facebook likes that each deal generated.

At the same time, they collected Yelp around 56,000 of them from 2,332 merchants who ran 2,496 deals–examining how merchant reputations changed before and after a Groupon deal.

Interestingly, their methodology looks to be sound as they were able to arrived at more or less the same value of sales through their period of analysis as Groupon announced in their corresponding period figures. Further analysis points to the direct impact that Facebook likes have on word of mouth, contributing significantly to a deal’s popularity.

However, the most interesting aspect (as the graphic shows) is the negative impact Yelp scores by customers who have redeemed the deal. In the cases where the Yelp reviewer mentioned either “Groupon” or “coupon”, review scores were 10% lower than average. In the case where BOTH words were used, review scores were 20% lower. It is worth noting that this is NOT totally indicative of ALL experiences, and the research is based only those reviews which included one or both of these words – the volume of reviews is much more significant. Groupon’s Hidden Influence on Business Reputation

Evidence certainly lends itself to supporting the Groupon model as not only a profitable but also sustainable one, but my feeling is that a lot of the criticism should rightly be levied at the naive partners not understanding what they are buying in to.

Sure, Groupon sales teams are no doubt aggressive in their approach, but the horror stories of not understanding cashflow and not phyisically preparing for what a deal ACTUALLY requires are aplenty. From poor stock management to physical space in the shop and poor customer service – the groupon deals merely highlight these issues more than you realise.

In the words of the researchers:

“This could indicate that a more critical audience is being reached, or that the fit between the merchant and these new customers is more tenuous than with existing customers”.

The interesting point would be whether or not the deal prompted a typical non-reviewer to post a first time review, or a frequent poster to post a more negative one than usual.

But, whilst it’s easy to Groupon Bash, are the merchants themselves as much to blame? Could or should Groupon be more proactive in preparing a business for a deal? After all, if Groupon are sticking with the line of recruitment marketing being one-off costs, then more merchants having successful deals and therefore repeat deals would make much more financial sense.

PaulFabretti

Paul Fabretti

Digital and Social Media Lead, Telefonica Europe, Telefonica

My role role is to plan and deliver the Telefonica Europe Global and European digital and social media vision and initiatives and make sure we continue to be seen as a beacon of both social media innovation and best practice.

I was previously Head of the award-winning O2 UK social media team, which recently won the inaugural Twitter flock award for outstanding use of the Twitter platform.

I'm also passionate about the concept of "social business" and how we can take learnings from customer behaviours and activity on our social channels and more deeply integrate them across the whole of our business.

See Full Profile >

Comments

Posted on September 14th 2011 at 8:06AM

Absolutely agree with the last point - with Groupon's aggressive approach they have completely forgotten about maintaing their already existing relationships with small businesses. So in essence, they are to blame that the business (reputation) is going downhill. If they had made sure from the start that the companies they advertise on the dealsites KNOW how to handle what's to follow, there would have be way more positive experiences from companies, who have used advertising on deal sites.

We actually wrote quite a bit more about what Groupon could have done better on our blog: 3 Ways How To Help Small Businesses Grow

Posted on September 14th 2011 at 7:14PM

Two things I learned after speaking with a several merchants who have employed Groupon. First is they all say that Groupon users are more demanding and less grateful. They also tend to leave more critical reviews of the estabishments. Two merchants said they received thier first-ever bad Yelp and Urban Spoon reviews from Groupon users. Second, the merchants also said that Groupon vastly under-estimated to them how many Groupons would be sold, with the final tally between 100 to 300% more sales than estimated.

I was a Goupon user to all the establishment and used that to open the discussion. Several merchants said they did not see repeat business and instead felt the Grouponers flitted from discount to discount instead of using the service to discover new venues at a discount.

Sustainable? I wonder.

Posted on September 16th 2011 at 9:07AM

Wow, who would have thought using Groupon would have lowered a restaurant's reputation? Although as you touched upon above, it was a known fact Groupon loses a business money. One of the main reasons for this is with Groupon they aren't able to maintain full control over their deals at all times. Once the deal is done, it's pretty much set in stone. What a merchant needs is full control over the deal. That's where Groupon is failing.

While Groupon may have popularized the daily deal, other companies have damn near perfected it, taking into account the good and improving the bad.

BigTip ( http://bigtip.com ) is one of the deal sites that improved on Groupon's existing--yet flawed--model. Bigtip allows merchants complete control over their deals, which ensures they make a profit.

When the merchants make a profit, they are more likely to continue offering deals, passing down the savings to the consumers. Everyone wins in this situation. In light of Groupon's IPO drama, it is apparent to me that it's on its way out, making room for more advanced sites like <a href="http://bigtip.com">BigTip</a>.

Posted on September 16th 2011 at 2:20PM

There are multiple truths here. Does Groupon attract a different, more demanding clientel? Probably. 

Are there lessons to be learned in these small businesses not understanding cashflow, or being able to calculate the value of a customer? "from poor stock management to physical space in the shop and poor customer service – the groupon deals merely highlight these issues more than you realise." If anything - this is the bigger issue - the problems with Groupon are merely exposing a much larger issue with these businesses.

I think there's opportunity in the second question. Small businesses need to be looking into loyalty programs, customer relationship management, subscription-based revenue models, etc so they know what they can pay to acquire a customer, how much they can "lose" on an upfront sale and still make money, etc, etc. Mail Order/Direct Response comapnies have operated this way for a long time (Omaha Steaks, Proactive, etc), but in the new economy, all small businesses need to find ways to manage profitable customer relationships. It's too competitive now - the days of a business owner being able to get away with a "build it and they will come" approach and gut-based decisions and still make a good living are over. 

Posted on September 18th 2011 at 12:44AM

Huge flaw in the study (unless I'm missing something here)- if the "data" collected (Yelp reviews) takes place from a Groupon user, its highly likely that those users are patronizing those business during unreasonably busy times.  As anyone who has used a Groupon in the last day or two before its expiration knows (and that is a LOT of Groupon users I'm guess): using your Groupon the day it expires can be absolute chaos.  Lines out the door, overworked/understaffed businesses, stressed out everybody.  So I think its pretty natural to see weaker reviews.  This affect needs to be accounted for or considered.