The rise of Groupon has been a real blessing for a lot of
companies trying to establish themselves in their local markets; especially
family-owned businesses that are trying to establish their brand and increase
sales.
As Professor Roberts has mentioned in lecture, it is
important for a company or business to establish visibility of their products
and services in order to get the results they’re looking for. Until and unless
your target market is aware of what you are offering and how that may benefit
them, you will not succeed as a business.
Even in this day and age, where everything revolves around
the Internet, most small businesses would put off going online with their
business until they’ve established themselves. This is primarily due to the
costs associated with launching a website and maintaining your online presence.
As a consumer, I believe first impressions on the web matter a lot. If I go
online and find that the website for a business is poorly maintained and
doesn’t add value, I would be put off by it and probably wouldn’t visit the
site again. From a business standpoint, I believe it’s a lot harder to fix or
cleanup a bad website than it is to launch a proper user-friendly website from
scratch.
So how would a small business that doesn’t have an online
presence get the word out that it exists and offers a valuable product or
service? You could go the conventional route of advertising in newspapers and
magazines or airing television and radio commercials. But how effective would
that be? And, more importantly, how cost-effective would that be for a small business
with limited resources?
For small businesses, or new businesses in general, the goal
is to establish your brand, to get the word out and increase traffic at your
store, restaurant, etc. Even if a company decides to go online right away,
designing and launching a good website may take several months and cost a
business thousands of dollars. So what can it do in the short-run to get the
word out, increase traffic and start making money to get the company off the
ground? Enter Groupon.
Firstly, what is Groupon? “Groupon features
unbeatable deals on the best stuff to do, see, eat, and buy in your city. By
promising businesses a minimum number of customers, we secure discounts you
won't find anywhere else. We call it "collective buying
power"! “. [1]
In a concise manner, Groupon explains
how it benefits both businesses and consumers from its service. Groupon offers
online coupons that provide consumers with discounts to various retailers,
restaurants and services that are normally hard to find anywhere else. Consumers
can enjoy a host of things from authentic Italian food to a Chinese massage to
flight lessons all within your neighborhood and all offered at deep discounts. For
businesses offering these discounts, Groupon guarantees a minimum number of
customers within a reasonable timeframe, which would result in increased sales
for that business.
There are two distinct benefits small businesses get that use Groupon:
- Increased visibility: as mentioned above, it is imperative for a business to make aware its target market of what products and services the business offers and how that will benefit potential customers.
- Increased sales/market share: by offering deep discounts on its products and services, the business can still ensure it realizes a profit but will surely increase sales, thereby increasing profits, and be able to capture a larger market share.
Increased visibility is crucial for a
small business to increase its customer base. Whether it’s a small restaurant
offering fine dining or a local mechanic offering skilled labor for a fair
price, the business cannot succeed until and unless it establishes itself in
the market and continually gets new customers. New customers are the lifeline
of any new business and the quicker it can establish that the more success
it’ll enjoy over time. By offering deals on Groupon the business is tapping
into over 115 million subscribers worldwide.[2]
Of course, for a small business, they would be reaching their local market.
Nevertheless, that number would still be much more significant than what it
could reach through other mediums. Not to mention Groupon guarantees a minimum
number of customers, which would make it much easier for the company to measure
the response they received from any given Groupon deal.
The second benefit received by using
Groupon is the ability to increase sales and market share. By offering deep
discounts the company is more likely to attract new customers to try out its
products and services. Take a new restaurant for example. It is often hard for
high-end restaurants to get new customers unless it’s by word of mouth or
positive reviews, on Yelp for example. But a new restaurant offering dinner for
two at half the price it normally charges will get more customers to dine there
and try what they have to offer. The restaurant can then retain those customers
by offering good service and good food. A one-time discount can get more
customers to try out your products and give the business the opportunity to
make a strong case for itself and ensure they keep those customers.
Increased market share is another big benefit often overlooked. Take two equally priced and quality restaurants in the same neighborhood. One restaurant has been around for ages while the other is trying to establish itself. It would be mighty hard for the new restaurant to capture some of the market share until and unless it provides an added benefit. The consumer needs something to make up for the uncertainty of what he or she may get at the new restaurant versus going to an established eatery where they may have gone several times. Offering a deep discount through Groupon would solve that problem and allow the new business to capture some of the market share quickly.
Increased market share is another big benefit often overlooked. Take two equally priced and quality restaurants in the same neighborhood. One restaurant has been around for ages while the other is trying to establish itself. It would be mighty hard for the new restaurant to capture some of the market share until and unless it provides an added benefit. The consumer needs something to make up for the uncertainty of what he or she may get at the new restaurant versus going to an established eatery where they may have gone several times. Offering a deep discount through Groupon would solve that problem and allow the new business to capture some of the market share quickly.
Groupon has helped numerous businesses
over the years and as a Groupon subscriber I can admit that I’ve come across a
lot of local businesses I wouldn’t have known about otherwise.
For a small business starting out new
or trying to establish a brand, Groupon can be a great business partner and
help the company promote its products and services.
[1] 2012. Groupon – FAQ. Retrieved from: http://www.groupon.com/faq#3.
[2] 2012. The Realtime Report. Groupon Doubles Subscribers
in 2011. Retrieved from: http://therealtimereport.com/2011/08/12/groupon-doubles-subcribers-in-2011-but-only-20-have-made-purchases/.
You bring up some good points about the benefits of using Groupon. However, the cost of running a Groupon deal is a big consideration. My sister who operates a small e-commerce business recently considered working with Groupon as a means to advertise her business and attract more customers. In looking into how Groupon works, the main deterrent was cost. Unless you have a product or service that runs on high profit margins of 75% or more, the deal itself is not profitable. The deal is usually set at 50% off and Groupon takes 50% of the revenue. This is fixed and non-negotiable. For example, if your deal was a $20 Groupon for $40 worth of product. Groupon takes half so you are only getting $10 for products worth $40, which is a steep 75% off. Not many small businesses could profit from these terms.
ReplyDeleteAlice point is spot on - cost is one of the main deterrents for merchants to use Groupon. Especially, as there are many competitors pushing into the market of group buying providers, like LivingSocial, Amazon Deals, Google Offers and Facebook Offers. The cost of the promotion is only offset by the increased customer base that returns to the business at the regular price. The total costs also depend on the type of business. Groupon makes particularly sense for businesses with high operating costs - i.e. if a hair stylist has no customer's hair to cut he's losing money either way. Groupon Now! is a newer solution from Groupon to address this problem. Merchants can post the promotion very ad-hoc for a limited time-window to fully use business capacity during slow hours.
ReplyDeleteYes, the cost is steep, and that's a major reason for a lot of merchant dissatisfaction with Groupon.
ReplyDeleteYou have definitely mentioned some good points. However, you haven't said anything about the fact that Groupon has contributed to a greater number of consumers who look for bargains only and they do not necessarily want to shop at a business again. Instead they keep looking for bargains. So the visibility aspect is not applicable any more. What comes from that is, unfortunately, a Groupon consumer who keeps shopping at different locations. Nobody benefits from that except the company itself. For, for instance, small hospitality businesses such as small budget hotels it is a huge threat as consumers tend to keep using Groupon instead of traditional booking channels, either Booking.com. As a result of that hotels keep decreasing their prices to become even more competitive and this leads to price wars. Addressing your point of 75% off the prices, this is true indeed and, that's why, many businesses do not wish to enter such deals. Personally, I believe that Groupon is less harmful for bigger companies who wish to attract new consumers and they have their ways to retain them as well. There are many more cons. Should you be interested in reading on them, please visit: http://www.inc.com/guides/201104/10-pros-cons-for-using-groupon.html . And if you want to dig even deeper then, please visit: http://www.inc.com/guides/201101/how-groupon-works-for-small-businesses.html
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