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BizReport : Ecommerce : October 04, 2010

Study finds Groupon merchants disillusioned

Local business owners are disillusioned with the type of consumers their coupons are attracting, according to new research, with many deciding not to use the social promotion deals again. Meanwhile, Groupon defends its business model saying nearly all businesses plan to roll out further promotions.

by Helen Leggatt

Groupon-logo_low_res.jpgDespite the majority of promotions using Groupon being profitable, many who participated are wary of repeating the experience. A study out of Rice University involving 150 businesses across 19 U.S. cities and 13 product categories found 66% of respondents ran a profitable campaign with Groupon, while 32% said the opposite. More than 40% said they would not run a Groupon promotion again.

So, if the majority of campaigns are profitable, why are businesses wary about running further campaigns? According to the study, the "extreme price sensitive nature and transactional orientation" of the type of consumers attracted to Groupon campaigns was not seen as particularly attractive.

"There is widespread recognition among many business owners that social promotion users are not the relational customers that they had hoped for or the ones that are necessary for their business's long-term success," reads the report.

In a nut-shell, Groupon users are die-hard bargain hunters. They rarely tip well, if at all, because they're watching the pennies. This was found to hit restaurants particularly hard, as the now-famous experiences of Posie's Café in Portland, Oregon, illustrates.

This, coupled with the sheer volumes of coupon-wielding customers, has led to difficulties for some businesses with some out of pocket and others experiencing staff disgruntlement.

"I think these findings show that social promotion companies need to better balance consumer appeal with positive outcomes for the small businesses offering them," said study author Utpal Dholakia, associate professor of marketing at the business school. "Right now, these deals are tilted too far in consumers' favor."

Groupon's CEO, Andrew Mason, has previously defended his business. In a blog post he claims 97% of Groupon participants plan to use the service again.

If you're considering a Groupon, or similar, promotion, it is well worth reading up on whether this sort of promotion is suitable for your type of business. A recent article in Business Insider, by Eric Clemons, a professor at The Wharton School of the University of Pennsylvania, takes an in-depth look at how group buying affects businesses with high and low marginal costs and the potential effects of a promotion.

Groupon has a section on its website that gives advice on planning and running group buying campaigns along with tips to prepare a business for an increase in traffic and how to prep staff.

Tags: group buying, social promotion

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  • Kevin Norman

    Group deals can be a great way to bring new customers in to your business, but just like any other form of advertising it’s no silver bullet. A group deal needs to be well thought out just like any other type of marketing. Groupon probably hasn't done a good enough job educating their clients on how to put together an offer that will benefit them – and this is a big failure because this is a new form of marketing for most businesses. LivingSocial is another group buying company that has wisely released a merchant bill of rights ( in the wake of negative publicity that Groupon has brought on the group buying category. Because of no up-front advertising costs group buying will probably continue to be a very popular form of marketing for businesses especially as more businesses learn how to do it the right way.



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