Are Group Deal Sites Really Good for Business Owners?

Posted by Mark Thompson - June 16, 2011 - Social Media - 6 Comments

I have no doubt in my mind that almost everyone reading this has bought at least 1 “Group” deal in the past.  Sites like Groupon and Living Social are capitalizing on local businesses who are willing to heavily discount their products/services to get hundreds of sales in 24 hours.

Personally I have worked with a number of my clients to put together a group deal, to help increase foot traffic.  But I also wonder…does it really make sense to a business owner?  It is helping their overall bottom line?

The Positive

Let’s start with the positive aspects of the group deal sites.

  1. Email List: Probably the biggest and most powerful aspect of these sites, are the size of their email lists, specific to a local market.  For some of the large cities Groupon and Living Social have hundreds of thousands of people, all opting in to receive their daily specials.  Even the smaller cities and towns have tens of thousands of subscribers.  The second part to this is the conversion rates are much higher because each subscriber is familiar with their brand, their daily emails, and the simple checkout process.
  2. No Hassle: The next positive is that they take all of the hassle out of the business owner.  They take care of the ad creative, copy, and promotion…you don’t have to do anything accept approve the offer and be ready to handle a flood of foot traffic.
  3. Not Redeeming Deal: Something that a lot of people don’t realize is that not everyone who purchases a deal is going to redeem them.  Many of my clients saw around 10-20% who never actually used their deal.  This means they still keep the money they made, without having to fulfill that order.
  4. Repeat Customers: Finally something that you cannot overlook, are the repeat customers that will keep coming in as a result from finding your business through the group site.  This can equal hundreds or thousands of dollars if you think of the life-time value of each customer.

The Negative

OK, so the debate begins.

So after I started running these deals for my clients, I began to notice a certain trend between all of them…not many were looking to do another.  After getting some feedback, here are the main reasons why.

  1. 50/50 Split: The majority of the deal sites now take 50% of the profits.  For many small business owners, this split takes away a lot of their profit margin, to the point where they either break even or actually lose money on the deal.
  2. Quality of Customers: I am not stereotyping deal customers (I am one of them), but I have noticed that many of them are looking for something for nothing.  A local bar that I work with was noticing that many of the deal customers were trying to find a way to get the lowest possible check.  Does you feel group deal customers are just freebie seekers?
  3. Are they Loyal?: I guess repeat customers can be a pro and con, depending on the outcome.   If none of the customers come back, the business will lose out.  From my experience, the business owners have not seen repeat business.
  4. Volume: The deal sites are based on volume….so that means that your business must be able to handle the influx in customers.  That may change your staffing needs and/or inventory.

You Decide

MOST IMPORTANTLY, I want to hear from you guys.  Obviously, this is a great concept for the customer..but for the business, that is open for debate.

What are you thoughts?  For the people who have run a deal, what has your experience been like?  Do you feel like the group deals are a positive or negative impact?

About the Author

Mark Thompson

Mark is the creator of StayOnSearch and president of Search Creatively, a full-service Internet Marketing Company located in Raleigh, North Carolina. He also contributes to many industry related blogs including Search Engine Journal and is active on Facebook and Twitter. Follow Mark on Twitter
7 comments
Custom Papers
Custom Papers

I’ve had my eye on this for a while… it’s great to hear it’s every bit as interesting as I hoped!

Madhu sharavanan
Madhu sharavanan

I would like to share the most important advantage of Group deal sites. Groupon and its clone scripts such as Groupon clone have many advantages. The first thing with this product is to filter the location that is 'SELECT YOUR CITY' option. This group deal site mainly concentrates on local market. So the value of discount coupons are high. Especially, if you are a person who loves to explore local attraction, then Groupon is an excellent choice. Instead of valueless global coupons, it provides valuable local coupon to local people. This is the real power of this group deal website.

Tom Longacre
Tom Longacre

I am a marketing professional in New Jersey and I recommend "deal" sites to my clients that fit one of the following two categories: 1. Very niche based business that is looking for "FREE" marketing (I represent a nut-free/gluten-free bakery www.dessertedpastries.com) the deal site can get them in front of many potential clients and if the business is unique enough it WILL create many repeat customers. or 2. a service based business that the cost of "inventory" or production is already used (such as www.nrucomputersolutions.com their computer systems are already purchased so the influx of customers just costs them time) or a 100% service type business (www.ladiesgoinggreen.com) where the site just wants more traffic I feel that the negatives for restaurants that have a lot of people "visit" for a FREE meal does not allow me to offer it to those types of clients that I work with.

Rose Begbie
Rose Begbie

I believe that these deals only help a business if the deal includes more of an initial buy in from the customer or if the product/service is very unique . For example a dentist or chiropractors deal that includes x-rays, initial consultation, and treatment then you are more likely to get repeat customers as they would not want to pay to get the x rays etc done again. I would also include a money off voucher for a 2nd visit in with the deal, as it will add to the value of the deal (making that 50/50 split less painful) and will mean that you either get the repeat business, or if the voucher is not redeemed then it is money in your pocket. My recent post Click Happy Computer Repairs Web Design

@writingc
@writingc

Generally we think it is good for business owners, but wait until the users started to post bad reviews about their experience, then it is bad. Some of the users might enjoy the deal (and perhaps post a recommendation) but about 80% would have something to complain about (which is what you mean by quality of customers, I guess). For me it is simple, if I were looking for a deal, I wouldn't be fussy. If I wanted to be fussy, I wouldn't buy a deal from deal sites, in fact there is no need to look for a deal at all.

Mark Thompson
Mark Thompson

Good points. I guess there are two points to what you said. 1. If your business doesn't have good service to begin with, regardless of who comes in, they would probably complain or post negative feedback. 2. I've noticed that if a group deal customer complains because they can't combined a special with their coupon...or can't use it on alcohol (even if it says it on the deal), they will not be happy regardless of their service. Thanks for the feedback. Mark

@writingc
@writingc

You are welcome. This is a great highlight of pros and cons of "deal sites". I am not a fan of these "deal sites" although there are more and more similar sites in my country.