Marketing your brand online is important, but if you’ve never done it before, you are likely to use a service called Groupon to promote your business. Many sellers claimed to have a lot of success with this platform. Will yours be the same too? In this article, I’ll discuss what goes behind the scene and what are the things to consider when advertising your business with Groupon.
What Is Groupon?
Groupon is a commission-based online coupon site that offers daily deals, ranging from products to services, to local customers. The company was founded in 2008 by Andrew Mason and currently operates in 48 countries. Approximately 48 million shoppers are reported to be using Groupon actively worldwide.
How to Advertise Your Business With Groupon?
The process is fairly simple. A business identifies a product or service that they want to feature at a discounted price. Groupon then uses the online marketplace and newsletters to advertise the deal to a massive audience. When a certain number of deals are sold, the business gets new customers and Groupon earns a commission from the total sales.
Why Is It Good for Business?
The idea of getting plenty of customers is very tempting for new or small business owners. Here are other advantages offered by the company.
(1) No Advertisement Fee
There is no upfront cost required to list a business deal on Groupon. Once your merchant status has been validated, you can start promoting almost immediately. If Groupon cannot achieve the sales target that was promised, you don’t have to pay them any commission.
(2) Massive Customers
Groupon has a huge list of subscribers so when they send out daily news offers, they are sending plenty of potential new customers to your business.
By using their channel of advertisement, you can attract buyers easily using a good product description and offering an irresistible deal.
(3) Brand Exposure
If you are just starting in business, listing promotions on Groupon can give your brand an immediate exposure to local audiences. As a result, you’ll find more people walking into your store, calling for reservation and checking you out on social media.
Why Is Groupon ‘Not So Good’ for Business?
You are probably thinking, what can go wrong with a popular site like Groupon? Here is where things get a bit complicated.
(1) Commission Cut
Unlike most online commissions, Groupon takes a big fat 50% cut from whenever targeted sales are achieved. Fifty is a big chunk, but how exactly will it affect your profit?
Let’s say you have a product that originally sells for $100 at retail and you are offering it at a 40% discount in Groupon. If 100 people buy directly from your store, you will earn $10, 000. If 100 subscribers purchase through Groupon, you will earn $6, 000.
Out of this figure, Groupon takes 50%, so that leaves you with only $3, 000 in sales at the end of the day. Now compare this with your store earnings and you are looking at a stark $7, 000 differences in profit! That is how much your business will have to sacrifice when advertising on Groupon.
(2) Discount Driven Customers
Let’s admit it. We all love discounts, but how often do we go back to a business when they aren’t offering any deals? To be a returning customer, you have to like them for what they do best besides promotions.
Most discount-driven customers are not looking for that kind of relationship. They just want it cheap and they wouldn’t hesitate to buy from your competitor next door when they are offering bigger discounts to please their pockets.
So while you are getting massive brand exposure, the new customers are simply grabbing your products like hotcakes without having any interest to know more about your business. Think for a moment how that can affect your profit over a long period.
(3) The Crowd Backfire
More doesn’t necessarily mean better and in this case, a sudden influx of customers walking through the storefront can make your business go into shock. Last week, you and your small number of staff are only handling 50 customers per day. After listing on Groupon, you guys are now handling more than 100 customers per day. How do you cope with that?
This can be a nightmare for service-based businesses such as restaurants, salons, or massage centers. Most customers are likely to wait longer than expected and it can turn out to be a very unpleasant experience for first-time customers. If the situation is not handled properly, your business could suffer a bad rating from people who are dissatisfied with your service.
So, Is Groupon Worthy of Your Time?
Well, it all depends on your business size and objectives. You can discuss with Groupon representatives on what is best for your business, but at the end of the day, you must be able to handle the cost and consequences that come with such a swift advertising strategy.
But is Groupon the only way to advertise your business online? Of course not. There are many other ways to do it and one of them is to create your business website and generate sales DIRECTLY from there.
Here are other advantages that you can benefit from running your business website;
- Keep all the sales profit without using the middleman service.
- Get brand exposure through search engines.
- List your local business on Google which helps to advertise for free.
- Allow customers to interact with your business team on social media.
- Build your customer list without relying on other services to do it for you.
The good news is, you don’t have to spend thousands of dollars on web professionals to get all these done. At Wealthy Affiliate, you can learn to do it on your own using the following tools and training resources. If you want to bring your business to the next level, then I highly recommend that you check out this platform.
Do you have any opinions or questions about advertising your business online? Feel free to leave them in the comment area below and I’ll get back to you.
Hi Cathy thanks for this article and like some of the other comments I didn’t realise they took such as big commission. I suppose though in comparison it might have been fairer comparing offering a 40% discount in your own shop promotion versus using Groupon, there is still a difference but it is $3,000 versus $7,000.
I wonder though for small newer brands how effective it is? Many people still look for brands they recognise, and I would imagine you’d still need to be recognised by people even to take up your offers.
Hi there Marie,
From my conversation with a few new local business owners, Groupon merely give them the exposure and a bit of push in terms of customer volumes. Branding recognition plays some roles, but from what I see, popular brands are unlikely to use Groupon for advertising because they would be driving sales directly from their business websites or online stores.
So it’s understandable that people generally go to Groupon to check out new shops, brands or products. When you do convert these people into your customers, you want to find a way to continue your business relationship with them through other means WITHOUT using Groupon such as joining membership or include their contact in your email list.
You’ll gradually build your brand and trust from there.
Hi there,
That was a fantastic in-depth description of exactly what groupon is. and how it can adversely affect your business. The old adage could ring true where more is not necessarily better.
I would have never thought that Groupon could be detrimental to a business. Thank you for that.
Yup, that adage certainly fits the Groupon business model. The high influx of customers can certainly backfire on a small business with limited resources.
Groupon, Living Social, and the other deal sites should be avoided like the plague. You pretty much nailed it with the cons.
You’re working for pennies, and being overwhelmed by a huge rush of “deal site” customers, many of whom will never be return customers, unless you offer a deal again. Regardless of how much the enjoyed your product or service.
The types of customers you attract from these sites are also notorious for not reading the fine print…or pretty much any of the details of what it actually is that they’re buying, being very difficult to deal with, and if you’re in a service industry, very often being non tippers.
You have a good point there, Chris.
Business is built to serve customers, but if all you are serving are ‘cheap customers’, you can run out of business very soon. High traffic should make you profit; not make you worry about losing sales, or your sanity for that matter.
I am a small business owner in western NY and I have always been intrigued by Groupon as a driver of local traffic. I had heard the “horror” stories of small businesses being over-run with volume that they couldn’t handled. But, I had no idea what the commission structure or economics looked like.
A 50% commission on an already discounted product is hard to swallow. As a business owner you better have a strategy for retaining customers when they visit. Maybe you could link their Groupon purchase to joining your website so you can interact with them over time. The website then becomes key to driving a relationship over time. I don’t know, just a thought…
Hi there Brad,
Your thought is absolutely spot-on. I don’t know if Groupon will (or willing to) release the customer information to a business, but it certainly doesn’t hurt to get new customers to answer some questionnaires in exchange for some contact details.
Besides asking them to join your social network following, I think it’s more effective to send out newsletters of products and services periodically to keep them interested in your business activities. That’s why you want to build a business website from the very start because that’s where you’ll broadcast all these useful information.
I’ve tried Groupon so many times and have purchased so many good deals. As a consumer, it offers so many discounts and its wonderful to discover new places to eat and even travel. I remember my chiropractor advertised his business in Groupon when he was just starting out. As a result, he got so many clients! So I think Groupon is still a good advertising platform.
Hi there Raquel,
Groupon is a gem for consumers, just not so for small businesses. I do hope that your chiropractor took the opportunity to build his/her customer list as a result of advertising on Groupon. As far as I know, Groupon keeps the contact details of the customers, so unless you do email marketing, chances are, your business won’t get a lot of returning visitors.
Very well written. I always wondered about this. How Groupon works. Glad I came across your website. Thank you for your explanation. It’s very clear to me how it works now. Crazy what an extreme discount. 10K to 3K. Damn. But sure as hell market better I guess. Though a big disadvantage is that if people know they can get it for that price, they only want it for that price.
Hi there Maurice,
That’s certainly one of the disadvantages to advertise with Groupon. You ended up targeting customers with ‘cheap’ mentality who probably won’t appreciate the value of your product or service at a higher price. It’s not their fault anyway; it’s just the repercussion of offering excessive discounts to consumers.