Why I don’t (usually) recommend Groupon

From andyjacobs.com

Two stories about Groupon caught my eye this morning: “Groupon Was ‘The Single Worst Decision I Have Ever Made As A Business Owner‘” on TechCrunch, and “Groupon Is a Straight-Up Ponzi Scheme” on the Knewton blog. The headlines say a lot about where opinions about Groupon are heading, and they reflect my belief that it’s usually a very bad deal for the merchant. Two major issues with Groupon that have prevented me from recommending it to my clients:

1. Their margins are unbelievable. The merchant first has to absorb a significant discount, and then Groupon takes a pretty huge cut of what’s left.

2. Their salespeople–or at least the ones I’ve encountered–are very pushy (as the merchant in the TechCrunch story says, “[t]he sales process seemed like buying a car”). I looked into it last summer for a restaurant client, for example, and suggested February or March as the best time for a deal since then when the business most needs a boost. The rep, however, tried to convince me I’d be better of doing it “now.” Every reason he gave to support that opinion seemed to be right for Groupon without having any benefit to my client. I said no, and they continue to call me about the same client. I ignore their calls.

Now, there are times when I think a business might benefit from considering a Groupon-like deal. A brand new retailer looking to attract customers, for example, might need the initial boost that an offer could provide. (One word of caution, though: hair salons, spas, tanning salons and other businesses that rely on customers making appointments should avoid Groupon even if they’re brand new. If your deal is “successful,” you’ll end up with a book full of low- to no-margin customers.) But remember, Groupon isn’t the only game in town. Interact with Groupon’s sales staff and judge for yourself, but don’t be shy about saying no. It’s likely the right decision for your business.

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9 Responses to Why I don’t (usually) recommend Groupon

  1. A word of caution for consumers, too: use the Groupons soon. If it’s a new business in particular you may not get long to use it if the place goes under. I’ve bought tons and used them pretty steadily but I also have a few that I have no idea when I’ll get around to it. And I agree about the sales people – some are better than others, I have to say, though.

    • ajjuliano says:

      Thanks for the comment, Robyn. You’re right that some of their salespeople are better than others, but they definitely believe in the hard sell.

  2. Tammy Davis says:

    Interesting. I have had a somewhat different opinion, since I have viewed a business’s Groupon expense as an advertising investment rather than a revenue proposition. If you really believe in your product/service, sometimes you just need a lever to get customers in the door so you can prove its value to them. It’s the repeat business that starts chinking coins into your kitty.

    • ajjuliano says:

      Thanks for commenting, Tammy. I think it definitely has potential for businesses that need to establish themselves, but it comes at a huge cost. If the business looks at Groupon like they would sampling, then I think it’s a little easier to stomach. But it’s definitely comes with some pitfalls.

  3. We looked into it for Derby Girls and discovered there’s no way we could afford it. I agree with the marketing aspect of it, but it was too high of a price to pay. On a personal level, ever since their distasteful Super Bowl commercials, I’ve disassociated myself with the organization.

    • ajjuliano says:

      Thanks for the comment, Amber. It’s funny you mention those commercials: they struck me as pretty arrogant (particularly the one with Timothy Hutton), which seemed consistent with the attitude of some of their salespeople. It was almost as if they felt they were doing my clients a favor by suggesting a Groupon deal. I can certainly do without “favors” like the ones they proposed.

  4. The problem with Groupon and similar programs is that you are training potential customers that they should not pay full price, that your regular prices are too high and unless you offer an outstanding customer/business experience, you aren’t likely to convert Groupon users to regulars.

    The other side, is that those regular customers you already have will start using discounts and your business loses profits that you were previously earning.

    • ajjuliano says:

      You’re absolutely right, Scott. There are a few places that have conditioned me to wait for the coupon/discount. It gets me in the door for sure, but I don’t think I’d ever pay full price for their products.

  5. itneresting article. i believe groupon has NO future(unless it changes) itself feel free to read my own latest post about it!

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