Posted on March 17, 2011
Ever since Groupon exploded into America’s inboxes, small retailers, in this industry and others, have been wondering whether it pays to get involved. Now, we are starting to see research studies testing its effectiveness:
Of merchants participating in Groupon and like promotions, only about 66% have a profitable outcome.The 34% of merchants running unprofitable promotions reported both significantly lower rates of spending by Groupon users and a repeat purchase rate of only 13%.
When I talked to Groupon for an article a few months ago, its spokeswoman said that the object of running a Groupon is not necessarily to turn a profit. It’s a marketing expense, a way to get people in the door, or attract new customers. Indeed, a Harvard Business School study found that Groupons are most profitable when they attract customers "different from the merchant's typical clientele." Certainly, if you are going through a slow period, and employees are just sitting around—as is all-too-common at some jewelers—the sudden rush provided by Groupon can’t hurt as a way to get the blood flowing. But, as this article advises, you need a "long-term plan" to get those customers to return.
One of the things that struck me when doing my piece is: People need to know their limitations, and calculate exactly how much traffic the company can stand. There are plenty of stories—you can read one here—about companies getting a huge influx of traffic from these sites, and being totally overwhelmed. They also must be clear about what they would (and would not) be comfortable offering at a discount.
One final point: Due to Groupon’s success, many companies, including Facebook, Google, and innumerable local TV and radio stations, are now offering “social deals.” And that risks losing what made Groupon special—it offered some truly impressive discounts, at reputable local companies. How many truly great mom-and-pops are out there and willing to participate? When I did my article on jewelers using Groupon, they talked about its “cool factor.” Now, six months later, after hearing so much talk about group coupons, that cool factor has come and gone.
I would be interested in hearing about jewelers' opinions—and experiences—with Groupon in the comments. And for those considering Groupon, check out some of the links above, as well as this post about "questions to ask" before you do.