What Is Groupon? Could It Work For My Business? What Do I Need To Know First?

By Matt Thompson – Director of Digital Strategy for The Zimmerman Agency

In November 2010 Groupon burst onto the Tallahassee scene offering steep discounts to any Tallahassee subscriber. In 30 days, a lot has changed with the service, making the revenue split with Groupon a bit more palatable for many of the Chamber’s small businesses.

But first, let’s give a brief overview on the Groupon service for those of you that may not be aware.

Groupon launched in November 2008 offering a “deal a day” to a few select larger markets such as Chicago, Boston and New York. Based on the concept of social commerce, the premise was simple- businesses could offer a steep discount (in excess of 50% off) to consumers, and the deal would only be active if a certain number of consumers purchased it. If not enough consumers purchased, the deal was off, limiting the risk to businesses and hopefully making it worth their while.

However, there was one looming merchant consideration- Groupon took 50% of the revenues. Yep, not only did the merchant need to give the customer a 50% discount, but another 50% went to Groupon. Goods or services that retailed for $20, only netted the merchant $5 when it was all said and done.

Still, Groupons were (and still are) an attractive offer for brands seeking to lure customers in the door for adoption and exposure. The most recent study by Utpal M. Dholakia, a marketing professor at Rice University, shows that 66% of the 150 businesses that were surveyed found their Groupon deal to be profitable and generated enough sales to justify the initial discount.

In December 2010 Groupon changed their model and now offers businesses the ability to create Groupon stores for free and offer deals whenever they please. The sign up is simple and there are two revenue sharing models with Groupon, 10% or 30%. If a business wants to market the deal to their customers on their own via e-mail, social media, word of mouth, etc., they can do so and only share 10% of the revenue with Groupon. However, if a business wants the power of Groupon’s e-mail marketing prowess and distribution, the business can share an additional 20% of revenue. At the very least claiming and setting the Groupon store has search engine optimization value.

There are ins and outs and limitations on how to create a Groupon (advance set ups, reservation systems, etc.). However, look for businesses like yours and see if there are any case studies. I just want to make two quick points about Groupons:

1. DO THE MATH. There are stories out there from businesses that ended up losing a significant amount of money by not doing their homework and, more importantly, understanding basic accounting principles. Take your time and study.

2. KNOW YOUR AUDIENCE. Understand the nature of the Groupon consumer. These are deep discount consumers that are not, on a whole, “brand loyalists.” You must, I repeat MUST, make sure you get some of data from the customer in the form of e-mail address, mobile phone number, address, etc. Driving hundreds of people to your store is awesome, but taking what would be a one-time customer and turning them into a repeat customer is epic.

Good luck to you in 2011 and happy Grouponing!

3 thoughts on “What Is Groupon? Could It Work For My Business? What Do I Need To Know First?

  1. Thanks Chamber for keeping business updated on new trends. We were the first fitness business in this market to use Groupon and found it pretty successful. At first it is alot of work determining what your offer is going to be, filling out the paperwork – but there is NO cost to the business apart from what they take. So for a membership based business like ours, getting our name/brand into the email box of over 30,000 Tallahassee residents without spending a dime is PRICELESS. Will we loose a little $$ if everyone who bought a Groupon uses it to the max and then never joins – yes. But worth the risk to get new faces in our place, new leads and our brand reenforced in the market. Consider this – New Leaf Market ran one the week before their competition opened and they broke the local record – selling over 2000 Groupons! Def. worth looking into and if you want the name of my sales rep, just email me 🙂

  2. Thanks for the post Matt.
    We looked into Groupon and realized it would not work for our specialty retail store but now that they offer a different model, we’ll have to revisit them.
    Their ability to reach a huge market is hard to ignore.

  3. @Jim- Make sure you check out Groupon’s new model for the stores. I wrote about this in a new post but they eliminated the 30% revenue share and now there is only the 10%. Also, LivingSocial is now in Tallahassee as well and they may be a better fit. Depending on your vertical, I may also have some recommendations. Feel free to email me at mthompson at zimmerman dot com

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