July 8, 2011

Groupon reaches 83 million followers with new deals daily. For the small business owner, partnering with Groupon can be the opportunity of a lifetime—or the near-demise of a business. As such, working with a daily deal company requires some thoughtful consideration.

Groupon prepares businesses for the day of the deal by telling them to add a phone line for every 100,000 Groupon subscribers in the city, hire additional staff members, stock more merchandise, and anticipate five times the traffic for their websites. While some businesses profit from the newly-found fame and clientele, others are crushed by the time Groupon takes its half of winnings of an already discounted product—which is usually 50 percent.

Here's the good and the bad that comes along with these online deals, and how to prepare for them:

1. Free advertising

Once you set up a deal with Groupon you can forget about the rest. They handle all the promotion and purchases by customers. For many small businesses, this is the way to get noticed, without spending a dime on an ad. After the deal is sold, businesses receive three payments over three months, so in the end, little time needs to be invested. Carey Friedman, who owns Grandpa Eddie’s BBQ, told TechCrunch: "We were seen by tens of thousands of potential customers in our area and that didn’t cost a dime!" He said 70 percent of his Groupon customers returned to his restaurant.

2. Damage to the brand

This one is hard to measure, but still potentially there. Associating with deep discounts can possibly damage your brand. When a new customer first knows about your product through an online discount or coupon, he or she might wonder if there's something wrong with the company, or if the business is slow.

3. New customers

The day a coupon deal comes out, customers tend to flock the business for the following weeks. Sounds great, right? Not always. If your business is unprepared for the new surge of demand, this can really hurt you. It can disrupt the service for the customers paying full-price (who now can't book your services), or completely wipe out your resources. The owner of Posies Bakery and Cafe blogged after running a Groupon deal: "We met many, many terrible Groupon customers…customers who argued with you about it with disgusted looks on their faces, or who tipped based on what they owed."

4. Lasting effect

Even though you will get many new customers by offering a deal, not all will be returning customers. The trick is knowing how to price: You want customers to spend over the coupon's worth. This works well for restaurants, because customers tend to get an appetizer, or a dessert, knowing they already have a coupon for the value of an entree.

Gregg Gibbs, the owner of Chicago Bagel Authority, offers a cautionary tale. He told the Chicago Tribune that he sold nearly 10,000 Groupons, ten times more than he had expected to sell. After splitting the revenue, the shop sold about $15,000 for $80,000 worth of food, and got mostly one-time customers who would return items if it got them over the $8 coupon value.

Ultimately, every business is unique, and there's no sure-fire way to predict how each will respond to a daily deal. So do your research, and consider calling up some local business owners who have partnered with Groupon.

Image credit: Asia/Pacific American Heritage Festival via Flickr

Related Topics

• Marketing

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Patricia Laya, Article, daily deals, Groupon, Business Insider, Chicago Bagel Authority, Grandpa Eddie's BBQ, Gregg Gibbs, Carey Friedman

Join the conversation ( 4 )

• Kyle Gordon 10 months ago

  

  Wondering if your business should run a daily deal promotion? Contact the team at Idea Buffet for free advice on how to structure your group buying promotion properly. Expert advice for best results. www.ideabuffet.ca

• jacco de bruijn 10 months ago

  

  Thanks for the article with some interesting insights. Another helpful article I can recommend is http://blog.hubspot.com/blog/tabid/6307/bid/14637/A-Small-Business-Marketer-s-Guide-to-Group-Deal-Sites.aspxOne thing to keep in mind is that the daily deal industry is still developing and different players will emerge aside from just the big, mass-emailing Groupon and LivingSocial that most articles focus on. There will be product-specific deal sites, there will be hyper-local deal sites and others again that aggregate all of them based on specific criteria. Merchants have to find what works for them considering their appropriate audience. At Signpost.com we offer merchants a tool to build their own daily deals to fit the specific business economics (http://merchant.signpost.com/). For example you can control the timing and amount of deals as well as the terms of the deal. This way they can find the right customers, provide them a quality experience and build valuable, longer-term relationships.

• JOSE VALADO 10 months ago

  

  The power of Groupon is the new customers it is going to attract. You really do need to make sure you are ready for the onslaught of customers you will receive. Groupon or a Living Social deal is no time to be slacking. You will get many new customers and if you deliver excellent service and are able to retain many of those new customers, you will be setup in the long run.Don't think of this as a one time deal or a negative branding experience. Every business can provide a special customer deal occassionally without affecting their brand. Do it frequently and it will likely affect your brand.

• Travis Priest 10 months ago

  

  I think the exposure Groupon offers to a new business is outstanding. The trick for merchants is to do a great job capturing the new customer traffic and converting them to long-term, repeat customers. I think one of the best ways for merchants to do this is with some type of loyalty program in-stores that you invite Groupon customers to join when they redeem.