So it looks like it’s time for a shake up in the world of daily deal sites like Groupon and Living Social and the countless other smaller local rip-offs around the world. It seems as though being required to offer massive discounts and then giving a huge cut of the sales to these deal sites is not something that merchants are willing to continue to do on a regular basis.
Retailers are apparently seeing little benefit from using these sites which is unsurprising as the notion of creating loyal customers for your business by offering discounts of up to 70% has always seemed a bit far-fetched to me anyway. These customers are clearly only there for one reason: a massive deal and it’s unsustainable for retailers to offer such large discounts on a regular basis when they are seeing little repeat business from customers who are just there to pick up a bargain.
Groupon invested heavily in sales teams to market to small businesses and in the end, this has proven to be an unsustainable way of scaling up. But at the end of the day, it comes down to whether the customers (i.e. merchants) found any long-term value in this method of promotion and it looks as though they are voting with their feet and not continuing to use this platform.
With Group Deal sites such as City Deal, Living Social & Gruupy becoming more and more popular in Ireland of late, and customers seemingly eager to snap up the huge deals on offer, it’s important to take a look at the advantages and disadvantages of these promotions to the businesses that offer them. While these deals are great for the consumer, who sometimes gains up to 90% off the R.R.P, they can sometimes provide little benefit for the businesses themselves.
The whole aim of running these group promotions is to build up a set of returning customers, yet, in too many instances it would appear, this does not seem to materialise. In a recent survey, 40% of businesses that have run Groupon promotions said they would not do so again with the main reason being that the customers they gained through Groupon didn’t return to the store as full price customers. It begs the question, what type of customers do you attract with these huge offers and will they return when the deal is over?
In addition to not being conducive to growing a loyal customer base, Groupon also comes under fire for charging a massive 50% commission on all the deals it runs. If margins are stretched and group deals are run at a loss, these promotions can actually have quite a negative effect on the business. It’s important to realise that, while going down the group deal route can work very well for some businesses, it certainly does not suit everyone and businesses debating over whether to use them should think carefully over how they would fit in to an overall promotional strategy before taking the plunge.