Seth Godin wrote a great post recently on margins for different business models and used Groupon as an example of a way to sell at a discount without only attracting customers that are always cheap and, therefore, will only ever purchase from you if they’re receiving some form of a discount. Granted, one of the major appeals for Groupon is the discount, but that’s not the only appeal. There’s also a huge social appeal, which Seth is right to point out.
One thought that I disagree with Seth on (and research is beginning to point out) is:
…many Groupon customers in fact do convert to becoming long time patrons of the place they tried, because they’re not inherently cheap shoppers. When they’re on Groupon they’re hunting for fun. But if you offer an astonishing product and great service after they try you, they may convert into shopping with you for the long haul, not because you’re a Groupon replacement, but because you bring them more than the alternatives.
What early research is showing–especially for small businesses–is that the businesses end up losing money on their Groupon and, at least in the near term, aren’t seeing an uptick in new customers as a result of the promotion. This trend is one of the reasons that some questioned Google’s purposed purchase of Groupon because there are questions if their business model is viable over the long-term. Google appears, however, to be ignoring some of these questions if we are to believe recent media reports.
Full Disclosure: I’m a Groupon user and I have had both positive and negative experiences with the service. To date, I’ve focused more on deals with products or services that I’m already accustomed to and the one time I’ve tried something completely new the retailer used poorly-worded verbiage on the Groupon and I ended up canceling the order.