Groupon Already Losing Luster For Consumers and Businesses Alike - 03/28/11
Group buying site Groupon hit the consumer mainstream in the last year offering out of sight deals of up to 50% off for everything from restaurant deals to diving certifications. As the emails keep flying into your inbox you might be wondering if Groupon might be right for your business. Before you get too excited here are a few things to know before jumping to the conclusion that Groupon, or any other group buying site, is a slam dunk.
- The high discounts of 50% off might not be true - price manipulation makes the true asking price hard to nail down. Businesses are increasing prices so they can make money after the group buying site's cut of 50%.Do the math, you keep 25% of the asking price.
- Servicing the hoards of buyers can be extremely difficult - most coupon buyers wait until the last minute to redeem. If your business doesn't honor the coupon you will get slammed on social sites like Yelp.
- The coupon structure may violate some state laws governing gift cards - Gift cards expire after 5 years per federal law. Group buying sites operates in a gray area.
- Group-buying sites are typically fly by night companies - not that Groupon is, they are quite healthy financially, but the stigma is being set by the other operations that are here today and gone tomorrow causing Groupon to be thrown in the mix with the bad apples.
- 40% of the coupons don't get used before the expire dates
- Companies are starting to cut back on the deals - to make money companies are having to add stipulations to avoid being taken advantage of.
- Most of the coupon buyers are just plain cheap - companies are finding that the retention rate for converting group buying site customers into long term customers is about 12% vs. 40% as the benchmark for similar promotions. Also the coupon customers are proving difficult to satisfy causing resources to be allocated to handle complaints.
- Most coupon purchases are impulse buys - some buyers might feel like they are actually losing money because they never use the items they buy
- The deals are a dime a dozen - for a determined shopper, finding a deal similar to your businesses is easily accomplished through other less known group-buying sites
- Weeding out bad companies is becoming a problem - as the concept grows more and more companies, good and bad, are joining the bandwagon. Groupon turns down 7 companies for every one they accept.
For a more in depth report on group buying sites visit Smart Money Ten Things Groupon Won't Tell You