Are Group Deal Sites Really Good for Business Owners?

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?