Topic: Marketing

Groupon Review: Local Businesses' Perfect Storm

By Bob Phibbs

[This is an excerpt from my new book, Groupon: Why Deep Discounts are Bad for Business]

Why pick on Groupon? That's because it’s been growing at an exponential rate over the past six months, and expects to end the year with as many as 25 million subscribers and $400 million in gross sales.

Lest you think I don't understand why business owners are grappling with Groupons, I do. When I was first trying to get business I took out Google pay-per-click ads. Trying to do "something" I went through several thousand dollars in the hopes I’d get people to my site.


They were hitting it alright. And leaving. The expensive truth was my site was terrible.

Until I fixed that experience for my customers, I was wasting my marketing. The same is often true of local businesses and these sites.

In the race to do "something" local business owners often ignore the things that can most affect their success but latch onto the promise of visibility and footsteps.

It has created the....

Perfect Storm

Could Groupon, BuyWithMe, LivingSocia, Bloomspot, HomeRun or other discount sites have existed five years ago? I don't think so.

When money's coming in its all due to us. When it isn't we look elsewhere. That's why The Recession has created a perfect storm for all these deal sites.

Here's why:

  1. Demand is down. People are more insecure with their finances, home, kids and jobs.
  2. There are more places than ever to buy things. Whether that is online or all of the “power centers” built on spec because money was cheap.
  3. Businesses that could formerly operate at a loss as a hobby because one of the spouses worked, now don’t have that luxury. That business must now show a profit.
  4. Things that were masked before such as bad operational policies, sloppy buying practices and non-existent marketing have all been stripped away. Owners are looking at the bottom line and saying, “I’m not making money at this.”
  5. We’re an impatient society. Any business consultant worth their salt will tell you it is common for a business to be unprofitable for at least a year. People have gotten in to business or purchased a franchise with little capital so they NEED to make profit right away. Instead of working on their business, they look for the magic bullet (like these discount programs) to do the heavy lifting that can only be done by exceeding customers’ expectations day in and day out.

Put another way, online discount companies are entering a tinder dry market that’s desperate for a match to burn and give these businesses some light. Even if it will be fleeting.Or burn them and leave them worse off than before.

Groupon reps walk into these businesses with hard numbers of people getting their daily emails, hits to the site and coupon sales. (Plus the medias fascination with covering all things cheap and discount.)

Groupon's rose-colored glasses make it all look incredibly appealing dismissing concerns over profitability.

Finally for today, the armies of new Groupon sales people pick industries to target. Take a look at these two photogaphers from different cities, how similar the packages are as well as the discover scuba diving coupons. That's because Groupon writes the copy that goes on the promotions and designs the page.

Again, these merchants are making Groupon and their ilk stronger, not their own brand. That's because they are exposing the niche experience of scuba diving to Groupons loyal customers.

As to the photographers - jeez guys why not just give it away for free at this point?

Do you really think anyone who sees that "deal of the day" will ever pay you over $300 or $600(!) for such a package when you charged 90% off? You've established your product is worth less than $60.

What say you readers?

Tomorrow: Part 5: How Groupon Trains Your Customers

Bob Phibbs, the Retail Doctor®, has helped hundreds of small and medium-sized businesses in every major industry, including hospitality, manufacturing, service, restaurant and retail. He is a nationally recognized expert on business strategy, customer service, sales, and marketing. With over thirty years experience beginning in the trenches of retail and extending to senior management positions, he has been a corporate officer, franchisor and entrepreneur.

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