GROUPON & Small Business
We are concerned about the GROUPON tide for small business because:
Few small business margins are at 40-50% therefore a GROUPON program costs more than it generate sin revenue.
- There are other alternatives for low-cost guerrilla marketing and advertising. Looking at the cost loss as cheaper than traditional advertising is a questionable practice. Local coupon mailers to the private mile or two miles around a business, the source of over 80% of revenue for most small businesses, is a likely alternative with more profitable results albeit lower volumes. High volumes at loss do not make sense.
- Makemi’s independent research indicates that few users of GROUPON return to purchase again, at least more than once more in the ensuing year.
- Group0n boosts the number of buyers by leveraging buyers with “if three friends buy your purchase is for free.” Buyers that buy because of another are a small percentage of buyers that choose, are satisfied and return for another purchase. Such buys are impulse buys and seldom lead to a sustainable increase in repeat sales (satisfied customers).
- GROUPON can adversely impact cash flow during a time of little or no credit for small business with a larger increase in outflow to cover the loss now from an already pressured cash flow.
- GROUPON programs are often purchased by buyers outside of your very valuable and private 1-mile or two mile customer base. Other more direct investment might build more repeat customers.
These are but a few of the reasons we distrust GROUPON as a solution for all. We suggest that it is a lower cost than the loss to pay for an analysis to prevent losing a lot or investing in a program that is a one-shot flash in the pan. Sometimes it is useful to pay a little and find out you might lose a lot than to risk losing a lot.
There are GROUPON success stores and many swear by the program. They include:
Offerings for services where costs are fixed and variable costs are low, thus increased volumes at deep discount can lead to profits.
- A new business wishing to speed up the traditional two-years form start-up to sustainability profitable operations.
- Establishing a presence for a new location for a location dependent business. Remember, many of the GROUPON buyers come from beyond 2-miles and are likely not to return. Plus, their network is often outside of the small business private mile or 2-miles. However, for a location orientation and awareness GROUPON may be a viable option.
- If building an Internet or Web based revenue stream GROUPON may be a viable alternative given that all GROUPON are “wired to the Internet and Social Networking.
Like any tool or any weapon, GROUPON can be used for good or bad. What is important is that the small business owner analyze, think and research before they jump. Everyone reports the “good” (gain) of a GROUPON effort. Few report the bad because a) GROUPON does report the bad (loss) and seldom do the unhappy GROUPON customers report the bad (loss) because they are embarrassed they made a bad decision.