Groupon Is Killing Your Business - Accellius White Paper

The Wrong – and Right – Way to Use Discounts and Daily Deal Sites To Grow Your Business.
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* Business Valuation
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April 25, 2014 - PRLog --

Groupon, Living Social, Amazon Local – these are just a few of the thousands of “Daily Deals” sites that have popped up to offer businesses a magic bullet to gain customers.

But let’s face it, these services do not exist for the purpose of helping to grow your business.  They exist to grow their own businesses.  The priorities of a daily deals site are clear – and logical.  For simplicity’s sake, we’ll reference Groupon throughout this paper, when referring to Daily Deal sites in general since they’re all pretty much the same animal.

First Priority: Groupon
Groupon has been one of the fastest growing start-ups in history.  Their business model is to make money.  Unfortunately, making money for Groupon rarely aligns with making money for the small businesses that they attract to their platform.

Second Priority:  The End Consumer
Groupon is a household name –not because they’re helping to grow small businesses, but because they’ve been exceptional at growing their own business.  They have grown a base of over 60 million customers, but it’s important to note that these are loyal Groupon customers, not loyal customers of the small businesses for which they purchas daily deals.

Third Priority: Your Small Business
Groupon, like most Daily Deals sites, offers no way for you or your business to communicate with your Groupon customers.  This lack of transparency makes it difficult to built lasting relationships and loyal customers.

Businesses that are successful in gaining new customers through Groupon are rarely able to attract loyal customers.  Again, Groupon is building a community of return customers for itself, not the small business.

The Good
•Small businesses can attract a boatload of new customers with a Groupon deal
•It’s never been easier to get your offering in front of so many potential customers.
•Researchers have found a surge in Yelp reviews from new customers after a Groupon offer.

The Bad
• Those Yelp reviews mentioned above…reviewers mentioning “Groupon” or “coupon” posted significantly lower ratings.
•Less than 50% of all businesses make money on their Daily Deal.
•Once you take into account the fees you’ll pay to Groupon, which equal 50% - 100% of the Daily Deal Purchase price, it’s nearly impossible to make any money on these new customers.

The Truth
A successful business does not rely on Groupon to build their customer base. As a Small to Medium Size Enterprise (SME) owner, you need to understand why your business is not attracting and keeping customers already.

Before offering a Daily Deal, or embarking on any marketing campaign, you must be fully prepared to Wow! every new customer you attract. If you continue to do business the way you are today, you will gain a slew of one-time customers and you’ll lose money on every single one of them.

Groupon can serve a purpose, at the right time and for the right reasons.  It is not, however, a magic bullet to save a business.

Breaking Down The Numbers
According to The National Restaurant Association and Deloitte & Touche, the average restaurant in the United States with checks under $15 showed a net profit of 3%. Those with checks from $15 to $24.99 boasted the highest profit margin at 3.5%. Finally, those with checks of $25 and over had the lowest profit, at 1.8%.

Let's use the highest net profit margin of 3.5%.

The business owner offers a Groupon that provides their customer with a 50% discount - $15 for $30 worth of food.  This is generally the lowest discount percentage allowed by Groupon.

So, here’s how the deal breaks down for the restaurant owner:

Assuming Groupon agrees to keep only 50% of the money collected from the customer (which is generally their minimum, but it can be up to 100%), they collect $15 from the customer and keep $7.50.  The business owner gets the other $7.50.

Now the customer comes into the restaurant to redeem their Groupon and spends a total of $35.  After getting the $7.50 from Groupon and selling $5 more in food than what’s covered by the Groupon, the business owner loses over $21 on that customer.

If this were a very “successful” campaign, the business might attract 200 new customers, meaning he would lose over $4000 on this single campaign.

In order to ultimately realize a profit on this campaign, assuming 20% of these new customers return ibhzj (which would be outstanding), they would ALL need to return 90 times just for the business owner to break even on this campaign.  If every one of these customers returned every month, without a coupon, it would take 7 ½ years to recoup the initial investment on the Groupon campaign.

The bottom-line is that business owners must understand why their business is not already attracting customers and must fix all of these issues before launching any marketing initiative.

Most often, it takes little more than a keen attention to detail and follow-up. These two essential business elements are so easy to practice, yet so many times overlooked. It is as if the owner operates a different business than the one customers are doing business with. Customers must have a pleasurable buying experience to return, whether it’s a retail, wholesale, or service business. A pleasurable buying experience includes everything from pre-sale to post-sale including benefits received.

When one part of the buying chain breaks down and part of the customer’s experience turns from pleasurable to non-pleasurable, the business risks losing that customer.

To be a successful business owner, you absolutely must see what your customer is seeing.  Before you open for business each and every day, look around your business.

Is everything spotless?  This includes every corner of the business.  Every product and surface must be completely dust-free and spotless.

Throughout the day, be out with your customers and staff. Make sure everything remains in order for the next customer who walks through the door.  You need to welcome customers, engage them in conversation and find out how their experience with your business is.

After you shut the doors for the day, take time to reflect on what went well and what did not.  Make notes of what you can do to make the customer’s experience better tomorrow.

Do what your competition does not do. Be observant, attend to details, follow-up with promises, and be your own harshest critic. It can only do one thing for your business – improve it.

Accellius is the business advisory firm that business owners come to when they want to achieve enduring results. Together, we uncover value opportunities, develop strategies to act on and energize tams to sustain success. We're passionate about always doing the right thing for our clients and our communities.

To request a preliminary assessment of your business, please contact Brian Turcina at 888.646.4449 x.1024 or

Brian Turcina
888.646.4449 x.1024
Source:Accellius Private Business Advisors
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Tags:Business Valuation, Business Consulting, Small Business, Groupon, Daily Deals
Location:United States
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Page Updated Last on: Apr 25, 2014
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