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.

So…

..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:

Untitled

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.