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Is Groupon Good for Small Businesses?

Fletcher SmithJul 31, 2012

Group coupons, aka daily deals, (originated by Groupon) have become very popular among consumers trying to enjoy the luxuries of life for less. Unlike a regular coupon you find in the local newspapers that offers a $2 discount on shampoo, daily deals are like coupons on steroids—they usually offer a 50% discount or even more.

Business owners are lured to offer major discounts for two main reasons: First, a minimum number of coupons have to be purchased for the deal to happen; therefore, group coupon sites guarantee business owners minimum revenue (not necessarily profit!). Second, millions of consumers get daily emails from a variety of group coupon sites, which means extensive exposure and many new first-time customers for the business.

Even though it sounds like a win-win situation for businesses and customers (and for the daily deals site owners), the businesses offering them usually end up with the short end of the stick. Not for nothing: a survey conducted by email and social media marketer iContact reveals that 70% of small-business owners hate Groupon.

Some small businesses have a good experience with daily deals, but most don’t. Why?

First, a lot of small businesses lose money when they offer deals through daily deals sites. You hear many horror stories about nail salons, restaurants and cafés that lost thousands of dollars. Businesses with high fixed costs and low marginal costs may be successful, but others will probably suffer.

Second, it might have a negative impact on your relationship with new and exciting customers. At the end of the day, businesses make less money on customers using coupons, and sometimes that leads them to give poorer service. So instead of attracting new customers, they get scared off. Not only that, unhappy consumers share their experience with friends or on their blog, and even more potential consumers choose to stay away. Loyal customers might have a bad customer experience, too, after being run over by a mob of customers with group coupons. Furthermore, they might feel cheated when they learn that the service they have been paying full price for can be sold for half or even less.

Third, it can hurt your brand. A product’s price is not used just to cover costs. The product’s price is also an indication of its value. If you offer your products for 50% off the original price, you basically tell your customers, “My product is regularly overpriced.” Also, the business owner has no control over the way his company or service is introduced on the daily deals website, which means you lose control over how your brand is introduced to millions of potential customers.

It seems like small-business owners have a reason not to like this new kind of coupon. As I mentioned, it could be useful to some, but it’s a marketing tool that needs to be used with great caution.