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How effective is Groupon for marketers?

Sangita RaySangita Ray

Posted on Tuesday, November 20th, 2012

In this gloomy economy, when consumers are remaining frugal and actively seeking out deals and discounts, Groupon has become a household name. Why not?  After all, it offers its users up to 90% off restaurants, spas, various goods/apparel and hotels, and the CPG industry has also gotten in on the trend. Forbes has named Groupon as the fastest growing company in web history, and its subscription base is growing astronomically. However, being an avid user of this website myself, I often wonder if it really is an effective marketing tactic for a retailer or manufacturer.

Groupon can definitely be a great marketing option for new businesses as it leads to an awareness explosion which further translates into an accelerated revenue stream. Even if it fails to generate huge profits in the short term, it works out quite well in the long run.  Groupon can help sinking businesses as well by triggering a surge in traffic and an influx of revenues.

Though Groupon can be very profitable and increase revenues manifolds for many businesses, it definitely isn’t for all. Studies show that 66% of those businesses which offered Groupon deals were profitable, while 32% were unprofitable. And, 42% said that they wouldn’t run the promotion again.

The major risk of engaging in Groupon is the potential failure to acquire loyal customers and gain repeat business. A huge consumer segment might be just looking for freebies and never come back without a deal. Typical Groupon users can be categorized as economical buyers (who hate to buy anything at full price), penny pinchers (who are obsessed with trying anything and everything they haven’t yet experienced) and coup-o-holics (who consider deals as free money).None of these segments usually are known for their customer loyalty or giving repeat business.

Overall, Groupon can be looked upon more as an advertising tool rather than a marketing strategy. While Groupon takes a huge cut out of the voucher sales from the retailer/manufacturer and consumers enjoy a huge markdown, offering a Groupon deal can be a little overwhelming for many marketers and not necessarily a sustainable tactic in the long run. While many marketers are pondering whether to Groupon or not, it is critical that they have a proper vision and a sustainable objective before they dive into it. Though marketers can earn huge profits and sales by engaging in Groupon like many others, they need to be cautious of giving deep discounts without having a very good understanding of the ideal consumer base they are targeting in the long term.

What has your experience been with Groupon?  Would you recommend using this marketing tactic?

6 Responses for "How effective is Groupon for marketers?"

  1. Luis Vargas November 25th, 2012 at 10:41 PM

    Groupon’s mistake is in its ability to evolve its business model to the needs of their customers and it’s certainly a marketing tactic that can actually backfire to the retailer/business if the consumer experience with this retailer/business doesn’t meet the brand promise. Groupon needs to evolve its model by going beyond just bringing the customer in the store once (tactical), but help the retailer/business build an integrated loyalty program that uses this first customer visit through Groupon as the first step for a long term evolving relationship (strategic). If a company with a mediocre product/shopping experience or that lacks a loyalty program uses Groupon to bring traffic in, the only result will be an even more disappointed consumer base or at best, an indifferent consumer happy to go back to her retailer/brand of choice. No wonder Groupon is losing relevance so fast.

  2. Kristel Bailin November 28th, 2012 at 11:11 AM

    I am an avid groupon user but agree that it doesn’t build consumer loyalty. Of the 25 or so groupons I’ve bought; I’ve only returned to 2 of the places for repeat business. Even though I’ve enjoyed my experience; I’m constantly looking for a new groupon that will give me the perceived same service for half the price rather than return to a merchant and pay full price. There’s a new service called Pinpoint that seems to be gaining momentum. It’s an app on an Iphone that gives rewards and tracks points for businesses. It doesn’t cost anything to the consumer to sign up and tracks points directly on the phone. In my opinion, this has the potential to replace groupon and be more effective at building customer loyalty since the user is rewarded for repeat purchases.

  3. Barbara Vogel November 28th, 2012 at 11:53 AM

    If I were running a fixed cost business such as a dance or yoga studio and had excess capacity, I would definitely employ Groupon. In essence, if you can funnel more volume through a fixed cost structure in a manageable way, then offering Groupon can be a great marketing tactic.

  4. Kelly Kratt January 3rd, 2013 at 1:12 PM

    I am a frequent user of Groupon and have gotten into the habit of checking their app on my iPhone every morning on the train. They’ve made it quite easy for me to simply click a button and purchase the Groupon within seconds. I would say that 99% of the time, I’m not looking for anything particular to purchase but if something seems intriguing and useful to myself in the future, why not purchase it in advance and save some money? It has been popular over the past couple of years, but after awhile, I keep seeing the same deals offered and items are less and less intriguing. Over time, I have a feeling that if they do not recreate their marketing strategy, it will simply fade away. The consumers won’t be as excited anymore about the deals on Groupon, because they are always there. It’s not as rare anymore to find one for a restaurant, sporting event, clothing, beauty and other items.

  5. Mark Eastwood January 7th, 2013 at 1:53 PM

    I agree with Sangita, Luis and Kristel it might be interesting to try something new but it needs to be relevant to me or I won’t take time to review the opportunities. Also, I’m less likely to try something 20 miles away so I have to think the major US cities are the target and people living in a subburb are somewhat less likely to be interested. It seems like a one time thing and if the service/food is good and its not too far from where I live/work then its most interesting.

    Taking a page from Foursquare, there are specials for repeat business. Maybe the two organizations do something shared? I also like some of the airport shop/dining sites that give discounts. It seems a bit more like a loyalty play. Perhaps connecting to yelp to tell the world about your experience (particularly if its a good experience) would be intertesting. Maybe I get 10% off on a repeat visit just for a positive Yelp and a public Foursquare or Facebook check-in?

  6. Stephanie Gray February 3rd, 2013 at 11:48 AM

    Groupon is now one of many sites that offer items, experiences at a discounted rate. With the upcoming YouSwoop and LivingSocial sites, the idea of how Groupon adds value to marketers is dwindling. I like the idea of combining a Belly type of experience with Groupon to develop a sort of brand loyalty to where you can build up points. If you get to a point where you are stuck making a decision between two different dining experiences and you know you have points built up that you could apply to a Groupon participating restaurant, who wouldn’t choose the place you could get a discount at? I think creatively they could be doing more and enhancing the power behind their offerings. For me, the daily emails from all of the sites more than often go in my deleted box as unless there is an incentive to make those advanced purchases, more often then not I will only go into their site when I know I want/need something. I think that marketers and Groupon could actually work together to make for a more positive experience for both parties involved and most importantly for the consumer.