I’ve been thinking a lot about Groupon and LivingSocial and what seem like a growing number of niche daily deal sites and was reminded to write this post after I saw this Wall Street Journal article: “Groupon Forced to Revise Results.”
If you aren’t familiar with them, Groupon and the others have a business that is basically built on two gigantic databases:
- A list of email addresses of people who are interested in being notified about all sorts of deals–restaurants, golf courses, shoe stores, hotels and even auto repair shops.
- Merchants who are interested in promoting their business by offering a special discount/deal to the people on the email list.
The short explanation of how Groupon gets revenue is that they match the merchants and deal-seekers and take a cut from the merchants’ revenue.
Groupon’s incredible growth has captured the imagination of investors, and the company went public earlier this year. But there have been reports of merchants’ dissatisfaction with the results of their Groupon (and other services’) promotion, specifically that Groupon’s cut of the revenue is too large.
But that’s not what I see as the real issue.
Curry’s Auto Service has used Groupon in the past, and, while it does drive customer traffic, I don’t see it as a sustainable driver of profitable new revenue. As a merchant, you do see a burst of activity after the Groupon promotion goes out to consumers, but:
- How do you know that the redeemers aren’t already regular customers? If they are then you’re just discounting revenue you would have received at full price.
- Do you have a plan for upselling redeemers so that they spend beyond their Groupon?
- How do you “capture” customers so that they come back? Do you ask for their email addresses? Do you have a loyalty or frequent buyer program?
If you don’t think through these issues before using Groupon or LivingSocial, you could end up with what I call the “5-Hour Energy” effect: a quick jolt with no long-term effect (on your business).
If you’re a merchant or consumer that has other thoughts on this, please let me know!