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GroupOn: Small Business Beware

Marketing | 29 Nov 2010

If you don’t already know, GroupOn is a massively successful “group buying” trend that has created an enormous following and worth, valued over 1billion dollars. The idea is, consumers band together to get better deals or discounts when purchasing products or services. Think of it as shopping bulk x 1000, but you are just one of the buyers. As a result, the volume allows companies to be able to offer deeper discounts. There is a condition though: typically, each promotion only becomes valid if enough users sign up for it, which encourages a viral effect. Brilliant!

Groupon Stores: Know the Facts

More recently, Groupon has added “Groupon Stores” which allows merchants to set up virtual storefronts, enabling them to manage their own deals. This is an excellent option for those businesses who do have the budget or patience, to be a featured deal of the day. Great, right? Like many do-it-yourself platforms it is not as simple as it looks and suffers from many short falls. For example, as more businesses make use of Groupon Stores, quality of offers is bound to suffer. If GroupOn cannot maintain a level of quality through the offer approval process, it may suffer so much that members will stop buying. Additionally, the stores offer very little in the way of a listing page. The page is plain with little ability to customize or stylize. Lastly, you can guarantee there will be much less traffic through Groupon stores when compared to featured deals, meaning many stores will never get found.

Inside Merchant Centre

Prospective merchants must visit the Merchant Centre and sign up. Once approved, it is important to understand a couple things before setting up offers. GroupOn takes a 10% cut of all sales you make. This is leaps and bounds better than the traditional cuts of 30-50% usually taken off sponsored and featured deals. Another important thing to understand is that businesses are only paid when customers redeem their deals, and not at the time of sale. This can be problematic for any new business or business that suffers from a poor cashflow. So, make sure to account for this before submitting discounts that are too deep.

Another thing to note, especially if you are a business that relies on tipping, GroupOn customers are likely not the most generous tippers. In fact, a Rice University survey showed that not only are they poor tippers, but GroupOn members are often already existing customers, typically not spending more than the face value of the GroupOn or return for repeat purchases.

GroupOn creates a phenomenal new opportunity to serve your customers and attract new clients. However, like anything else, buyers beware. There is very little risk as long as you have examined your bottom line, but don’t expect miracles.

The Alternatives

There are many great alternatives to the group buying phenom, each with its own set of strengths and weaknesses. These application makers are worth a look: WildFire and eWinWin. Also, be on the look out for Couvon as they are quickly growing in size and reach.

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