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Groupon: Winning You Customers or Losing Your Profits?

A wide variety of businesses use the daily deal website Groupon to publicize their stores, services or restaurants and attract new customers, but for many small operations, offering the discounts may be a big gamble.

Groupon sells digital coupons with gift card-like face values paired with temporary high discounts. For example, a consumer might pay $15 for a certificate that is valued at $30 at a specific store if spent within six months.

The web service launched in 2008 and has reached 54 million active users since then, according to an article by the National Retail Federation.

Groupon and the Local Merchant

The big discounts, though, can cause problems for businesses offering Groupons.

“In individual markets, Groupon has often been used by small businesses as a means to create visibility,” the National Retail Federation article explains. “While Groupon can bring customers in the door, the deals are not without risk: Critics say many small businesses can be swamped with traffic they can’t handle while taking a loss by giving away products or services at too deep of a discount.”

Another worry about the site is that it makes merchants drop their prices so low that they will likely gain temporary bargain shoppers, not new long-term customers.

However, the daily deal website reports that its internal survey data shows “90 percent of merchants said their deal brought in new customers; 82 percent of customers said they were likely to return to the merchant, and 65 percent of customers spent beyond the value of the Groupon.”

Once a business owner decides to create an online campaign, the promotion can be a win or loss based on the actions taken by the merchant.

Susan Solovic, small business expert, explains that “a Groupon campaign will find success if the small business structures the deal and capitalizes on visitors redeeming the deal,” according to the National Retail Federation article.

So instead of expecting to earn profits via Groupon, retailers should think of the campaigns as marketing and use them as customer acquisition efforts at prices the businesses can afford, the article says.

About Renee Changnon

Renee Changnon is the retail outreach coordinator for NRHA. She meets with retailers in their stores and at industry events and introduces them to the services NRHA provides. Renee previously worked as a member of the NRHA communications team. She earned a degree in visual journalism from Illinois State University, where she served as the features editor for the school newspaper. After college, she implemented marketing and promotions initiatives at Jimmy John’s franchise locations across the country. She enjoys exploring books with her book club, Netflix marathons and hosting goat yoga at her apartment complex. Renee Changnon 317-275-9442 rchangnon@nrha.org

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