Why Groupons Are Bad For Small Businesses and Consumers
Saving money certainly motivates many consumers to make small or large purchases, and the perceptive small business owner seeks out marketing strategies that increase revenue. The daily deal delivers savings, but recent research into this relatively new marketing strategy reveals some important and obscure facts that affect consumers and small businesses alike. How the Daily Deal Works The Groupon business model offers consumers, small businesses and Groupon a “win-win-win” situation. The daily deal strategy provides consumers with discounts, small business owners with new customers and Groupon with revenue. Groupon, a word devised from group coupon, offers consumers in a local market, Chicago, for example, a deep discount on a product or service for a price. If enough people participate in the daily deal, Groupon opens the offer to the public. Once a consumer pays for the deal, the small business receives roughly 50% of the sale. For example, if a photo booth rental Dallas Groupon offered rentals for $500($800 regular price); the photo booth owner would only receive $250 for a $800 service. Once you subtract the cost to pay an attendant, supplies, etc. the business owner maybe makes a measly 75 bucks out of the deal. The daily deal concept is simple, but the complications and negative consequences are bad for both consumers and small businesses.Also keep this in mind. What if a photo booth company offers a Groupon and 200 people sign up for the deal, most likely everybody will want to book a Weekend. Now you and 20 other people find out there are no photo booths available for your event and; Well, you get the picture. Why Groupons Are Bad for Small Businesses The overall goal of the small business is to gain new customers through marketing deep discounts. Nevertheless, research shows that Groupon offers have a negative effect on several other important performance areas. The reputation of a small business can make or break the company. Developing a strong brand, solid products or services and customer relationships takes time, money, and patience. The small business relies significantly on the development of strong customer relationships and research shows that Groupon deals ultimately wreck a large percentage of those relationships. Recently, computer scientists at Harvard and Boston University performed research on the effects on businesses that offered daily deals through Groupon. The findings, briefly summarized by Technology Review, reveal that the ratings submitted to Yelp for businesses that offered Groupon deals spiked tremendously immediately following the offer. The research also reveals that a substantial number of those reviews were negative. Researchers believe a number of factors contributed to the substantial spike in negative reviews. In many situations, a small business’s ability to handle the influx of customers is severely limited. For example, a restaurant that runs a successful Groupon campaign might find itself overwhelmed by the response. Hundreds of additional customers will slow service, tax the menu and wear down the staff, resulting in poor reviews and a damaged reputation. The DFW photo booth Grouponcould lead to out-of-stock supplies, mistaken double bookings, bad customer service, no attendant being available and a generally miserable experience. Existing customers also experience negative results from Groupon campaigns. Extended service times due to a rush of new customers can change a loyal customer’s view of the small business. In addition, the rush to cover the cost of deep discounts fuels the rising costs for products and services. Consequently, daily deals, Groupons and coupons each contribute to the higher prices paid by unwary consumers. Why are Groupons bad for small businesses? Ultimately, the small business takes a huge loss on revenue to market a deal that leads to poor reviews and a damaged reputation. Many customers experience subpar service and report how poorly a business performed on the Internet――leading to a significant downturn in positive reviews.