I’m sure by now, most of you are familiar with Groupon, the collective buying discount service that offers deals on things to do, eat and buy in your city. Now in 55 U.S. cities and growing rapidly, Groupon is a hot commodity among the “deal seeker” community online with its amazing discounts offered via daily emails and its web site.

No doubt, Groupon is great for the consumer. The “daily deals” are typically in the 50 percent off range, with some even at a 75-80% discount off restaurants, services, etc .- who wouldn’t love that? These deals obviously are great for the consumer, but as a marketing consultant who helps businesses increase visibility and sales online, I’m a little worried about what’s in it for the business.

In a recent article on Open Forum, John Jantsch of Duct Tape Marketing posed the question “Could Groupon Save Your Business?”.  He highlighted the major benefits of the service – mostly for consumers! – but also noted how businesses could use the high traffic and visibility that results from these offers to create a stream of new customers. He noted “…I’m not sure there is a more effective play out there right now for the small business looking for ROI on marketing dollars invested.”

And yet, I disagree. Is it a good business decision to take a deep discount for a sale – especially if you never see the customer again? For example, when a restaurant offers a $50 value  Groupon for $25, the restaurant only reaps about $12.50 of that – yes, Groupon typically takes 50% of the sale ( although they do note their cut varies based on the market, merchant and number of deals sold.)  That’s a steep price to pay. And is the visibility and word-of-mouth value from this one-time offer  really worth a 75% (or more) discount off a business’s already tight margin?  Is that good ROI??

Actually, it might be — IF the business also does one (or more) of the following:

  1. Capture the customer’s complete contact info when they redeem the Groupon– I’ve talked with dozens of friends who have happily purchased and redeemed Groupons in the past few months and virtually NONE of them were ever asked for their contact info so the business could follow up. Retention and repeat business are a MUST if you offer a Groupon.
  2. Sell a follow-up/repeat service to the same customer when they redeem the Groupon– As a business, you have an interested customer right in front of you, happy with the deal they have purchased.  Why not sell them a SECOND 50% off deal right then (before they leave, possibly never to return)? And guess what? You get all of that money ($25 on the $50 value), rather than giving $12.50 of it to Groupon!
  3. Limit the Groupon to new customers only – depending on the business, it might be a little harder to determine and track who is “new”, but the value of such a loss-leader deal is in introducing new customers to your products/services, rather than offering a cut rate to your current, loyal clients that are going to buy from you anyway.

So there you have it – my take on the Groupon phenomenon and its value to a business.  I know there’s going to be some feedback on this one, so let your opinions fly in the comments below!  I especially would love to hear from businesses who have used Groupon, and how their subsequent sales have been affected.