Editor’s Note: This Guest Post is from Greg Sterling, one of the leading analysts in the local online technology space.
Greg Sterling is a Contributing Editor at Search Engine Land. He writes a personal blog, Screenwerk, about media and the connection between online and offline. He also posts at Internet2Go, which is focused on the mobile Internet. Follow him @gsterling.
In 2010 Groupon reportedly made $760 million according to documents obtained by the Wall Street Journal. However the unprecedented growth of the daily deals segment and Groupon in particular has left some casualties in its fiery wake.
In early 2010, just as Groupon was gaining national visibility and momentum, anecdotal stories emerged of small businesses that couldn’t handle the customer volume or for whom the Groupon promotion turned out to be highly unprofitable. There were also gripes by some business owners about the type of customers Groupon delivered – bargain hunters who don’t repeat.
There have also been many success stories. Groupon claims more than 90% satisfaction among its merchant customers. And an independent study of about 100 small business daily deal marketers found a similar satisfaction figure.
However, a Rice University sponsored “Groupon Effectiveness Study” (September, 2010) among 150 small businesses found that satisfaction levels were considerably lower than these deal site surveys suggested.
Among the respondents with negative experiences, the Rice study offered verbatims about undesirable customers using Groupon. “One restaurant owner observed that ‘Most of the Grouponers were what we call ‘deal- seekers’; they felt entitled to special treatment, didn’t spend more than what the Groupon itself cost, they didn’t tip, and most won’t be repeat customers.’”
The Rice Study also reported that two-thirds of merchants using Groupon found it to be a “profitable” experience. What’s more, the general appeal of the business model continues to grow. The idea of paying for customers rather than clicks is compelling to most small business owners because it effectively eliminates risk and opacity from the online marketing proposition.
A 2011 Opus Research-MerchantCircle small business survey of 8,456 merchants found that the Groupon marketing model – paying a percentage of a sale – was the most popular among a range of choices, which included search PPC and pay per call. A similar Opus survey in Q4 2010 found the same result by an even wider margin.
Yet more than 50% of those who had some experience with daily deals in the 2011 survey said they would not repeat. Similarly the Rice study found 42% of respondents would not run another Groupon or daily deal promotion.
There’s a curious contradiction here: businesses love the idea of the daily deal but often the experience is disappointing. The model as it’s presently constituted is in need of some tinkering and alteration. Education and proper expectation setting are also important in overall merchant satisfaction. Small businesses need to understand what they’re getting into and how to make the most of it. Deal providers need to offer “best practices” and guidance to business owners so they can take full advantage of the opportunity.
Yet regardless of how it evolves, the Groupon model has already had a significant and probably lasting impact on the future of local online marketing.
lynoralargent
Merchants need an advocate…the deal monitor is an agency who positions the merchant on a deal site that targets their desired customer. If a merchants discounts their rates to bring in customers, they are only doing that on the chance that the customer acquired from that discount will return and pay retail. The business has a higher chance of targeting that customer if they offer that discount on a niche deal site where all the consumers have related interests such as dog products on a dog deal site or Lane Bryant on a Plus Size deal site as opposed to a very general deal site such as groupon where all opt-ins are there just for a bargin. see http://www.thedealmonitor.com
April 2, 2011 at 9:55 pm
Jim Brickman
It's not just merchants…customers are also waking up to the fact that Groupon is a bad deal.
The hundreds of daily deal clones are no better. They are all trying to get rich at the expense of merchants and consumers.
The Groupon model is inherently destructive and will be dead within a year.
May 29, 2011 at 11:02 pm
Yipit Tears Apart the Groupon S-1 and Clip’s Analysis on the Daily Deal Economy « Clip Mobile Blog
[...] This is not a new criticism of the Groupon model. Way back when things were just heating up for Groupon, some folks were already scratching their head about the fact that the model is very easily copied (little differentiation, lots of competition), users have very low switching costs (I don’t care who sells me the deal, I just want the best deals!) and the pool of quality businesses and quality deals in any given city is actually quite small. [...]
June 23, 2011 at 4:04 pm
Chicago Daily Deals
Special Offers. Available from 1 Store : Select your deal and buy. Where can I buy a ? At all of these merchants listed below. Click any of the deals below to buy now on the merchant's website.
August 8, 2011 at 4:22 am
best-price-auto.info » Blog Archive » Why Groupon Must Change Its Business Model for Long-Term Success
[...] deal — a number that closely mirrors Groupon’s own internal data, as well as that of another recent study. Almost one in five say they would not run another deal and just about a third are on the fence. [...]
October 26, 2011 at 6:25 pm
Why Groupon Must Change Its Business Model for Long-Term Success « Social First – Web Design, Social Media and Digital Solutions
[...] another deal — a number that closely mirrors Groupon’s own internal data, as well as that of another recent study. Almost one in five say they would not run another deal and just about a third are on the fence. [...]
October 26, 2011 at 6:29 pm
Why Groupon Must Change Its Business Model for Long-Term Success | It's Me Adam
[...] deal — a number that closely mirrors Groupon’s own internal data, as well as that of another recent study. Almost one in five say they would not run another deal and just about a third are on the fence. [...]
October 26, 2011 at 6:52 pm
Why Groupon Must Change Its Business Model for Long-Term Success
[...] deal — a number that closely mirrors Groupon’s own internal data, as well as that of another recent study. Almost one in five say they would not run another deal and just about a third are on the fence. [...]
October 26, 2011 at 7:00 pm
Why Groupon Must Change Its Business Model for Long-Term Success | fronteira sem limites
[...] deal — a number that closely mirrors Groupon’s own internal data, as well as that of another recent study. Almost one in five say they would not run another deal and just about a third are on the fence. [...]
October 26, 2011 at 7:01 pm
Why Groupon Must Change Its Business Model for Long-Term Success | bursst.com
[...] another deal — a number that closely mirrors Groupon’s own internal data, as well as that of another recent study. Almost one in five say they would not run another deal and just about a third are on the fence. [...]
October 26, 2011 at 7:07 pm
Why Groupon Must Change Its Business Model for Long-Term Success | Brian's Blog Site
[...] another deal — a number that closely mirrors Groupon’s own internal data, as well as that of another recent study. Almost one in five say they would not run another deal and just about a third are on the fence. [...]
October 26, 2011 at 7:33 pm
Why Groupon Must Change Its Business Model for Long-Term Success | Startup Help
[...] deal — a number that closely mirrors Groupon’s own internal data, as well as that of another recent study. Almost one in five say they would not run another deal and just about a third are on the fence. [...]
October 27, 2011 at 2:04 am
Grouponが生き残るためにビジネスモデルの変更を迫られる理由 | Startup Dating [スタートアップ・デイティング]
[...] ライス大学が主要な共同購入サイト5社を対象に行なった6月の調査から、48.1％の企業が再び同じプロモーションをしたいと思っていることが分かった。この数字はGrouponの 社内データおよび最近行なわれた別の調査ともよく似ている。また、ほぼ5人に1人が「再び同じプロモーションはしない」、そして約 3人に1人が「分からない」と回答している。50%という数字は販売者の滞留値としては悪くない。だが、この調査を執筆したウトゥパル・ドラキア教授は、共同購入サイトのモデルには欠陥があると述べている。 [...]
November 14, 2011 at 12:01 am
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January 13, 2012 at 9:44 am
Death of Groupon? Why Card Linked Offers May be the Next Big Thing
[...] seem to like the daily deal in theory, but dislike the end results. While some research has found that many Groupon merchants [...]
September 19, 2012 at 4:05 pm
kenny
When customers are making a bad deal with Groupon. It will comes to an end. Moreover, they are trying to get rich at the expense of merchants and consumers.
March 18, 2013 at 9:48 am
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