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4 Reasons Why Groupon Sucks for Small Businesses

Black Friday means shopping and Cyber Monday means more shopping. It will not be a surprise to see deals like none other on social buying sites this year. From insurance to cupcakes it seems the whole group buying phenomenon is still trending, and it also seems the only people who are benefiting are the end consumers and the sites themselves like Groupon, Bloomspot, Living Social, etc.

As a small business owner, companies like Groupon are tempting because you are hoping to get your name out there, draw in new customers and hopefully make them repeat customers. But what if running a Groupon deal puts you in the red and you can’t recover quickly enough? Do the math first.

When iContact did a recent survey among small businesses, 70% of small businesses said they hated Groupon. And, 25% of those surveyed also stated they hated social media in general – ouch.

Apparently there are many horror stories about Groupon and small business owners. The crux of the matter seems to be this: Groupon doesn’t allow you to cap your sales, and they convince you that deals that offer a 50% or more discount sell the best; luring unwise small business owners into thinking that it’s a shoe-in deal. And make no mistake, it is, but only for Groupon and the end consumer. Here’s why:

  1. Unfair Share. Groupon takes 50% of (most) net sales. So if you offer a deal of 50% off of a $40 service and offer it for $20, Groupon takes half, leaving you with $10 per sale for a $40 item. Most small businesses don’t mark up their products by 400% in this economy.
  2. Insufficient Staff. Another reason it’s bad for business is because as a small business owner, you have a small staff and a small staff can only deal with so much business at any given time. When your business exceeds that limit, you usually hire more people. But you can’t afford to do that for a Groupon deal. Plus, when you offer a deal on Groupon that you can’t handle, customers become angry and disappointed and then walk away with a negative experience and go Yelp about it or blog about it.
  3. Diluting your Brand. You set your prices for your products and services for a reason. Chances are in this economy you are setting them a little lower just to stay afloat. Don’t sell yourself short by selling a ton of your product/service for quarter of the price.
  4. Not your customers. That’s right, these peeps who sign up for the deal are not your customers. You don’t even get their email addresses – Groupon keeps that info from you to protect their customer’s privacy so that they are not spammed by every company’s deals they take advantage of.

What you should be doing is getting your name out there in other ways like using social media outlets, finding cheap digital ads to buy, creating a newsletter, or possibly direct mail post cards. The point is that there are ways to get the word out about your services without breaking the bank.

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About Tracy Sestili

Tracy Sestili is CEO and Chief blogger at Social Strand Media. She is also the author of Taking Your Brand from the Bench to the Playing Field -- Social Media Fundamentals for Business.

Comments

  1. Tracy – This is a good concise overview of the issues of dealing with Groupon. The business model is good for Groupon and the consumer. But the biz owner – not so much.

    May be why their stock is not doing so well.

    • Tracy Sestili says:

      Hi Steve, thanks for your comment. Lol, you are probably right (re:stock). Things seem to go full circle in this world.

  2. After reading all these comments about the Groupon experience I kept researching my options. I came across a different business model that seems to be in the favor of the business owner, plus it’s FREE!!

    If you want to try it the site is called totet. Strange name but at least it’s free and seems to have multiple services to attract customers to your business. They even have an app for Apple and Android.

    I can’t lose anything if it’s free. wish me luck.

    • Tracy Sestili says:

      Hi Kirk – sounds interesting. Please be sure to come back and let us know how it works out for you. Maybe you could even do a guest blog if you were interested.

  3. Lauren Bishop says:

    Some new discount companies are operating on a new platform that is much more beneficial for the merchant. Leloca is one of them – its a new free smartphone app that connects people with nearby discounts at restaurants, spas etc that are offering real-time deals to be redeemed right away. The merchant has total control over the deal and activates the deal only when they have open space and want new customers in. Its a great way for them to increase profits and reduce waste (electricity, food, staff etc)

  4. Tracy Sestili says:

    Thanks Patsy, that’s a good point. Please don’t forget to shops tomorrow on Small Business Saturday.

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