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How Effective are Groupon Promotions for Businesses?

November 3, 2010

http://www.ruf.rice.edu/~dholakia/Groupon%20Effectiveness%20Study,%20Sep%2028%202010.pdf

This study, done by a professor at  Rice University, is a must read for any business considering a promotion with Groupon. I am teaching a class tomorrow for the Hospitality and Sales Marketing Association International about the social media promotion business model of sites like Groupon.com.

Below are my notes for the lecture. Thought you’d find them interesting. It will save you the hassle of reading the whole study. 🙂

Based on a study done by Rice University Professor from June 2009-August 2010

  • 66% of businesses that participated in Groupon promotions found it to be profitable.
  • 32% did not.
  •  Groupon offers significantly discounted prices, 70-80%.
  • Out of all the businesses that considered Groupon to be profitable, 20% would not do a promotion again.
  • However, out of those same businesses that were proftiable, only 31% came back a second time. 
  •    2 factors predicted a Groupon promotions profitability:

1.       How satisfied the employees were with customers

2.       Effectiveness of reaching new customers

  • Prepare Employees. Compensate them for lower tips. They will be lower.
  • Groupon is useful for businesses that need a lot of traffic. Not good for businesses with limited traffic. Businesses should not replace loyal, good customers with groupon patrons.
  • Restaurants: 42% of restaurants reported unprofitable promos. The customers tend to be deal seekers, don’t tip, won’t return, act entitled and not as friendly.
  •  Spas: 82% of spas reported profitability.
  •  Sustainability of social promotions business model: According to this study these promos are structured in such a way that they give too much value to consumers and not enough to small businesses.
  •  When time allowed for redemption is longer, Groupon promotions were more successful.
  •   3 things to monitor during promotion:
  1.        Effectiveness of reaching new customers
  2.        % of Groupon users buying more than the value of the coupon
  3.        Employee satisfaction
  •          Imitation sites aren’t as effective. Groupon is like the Kleenex of tissue.
  •          Groupon is said to be 75% more effective in:
  1.        Groupon sales
  2.        New customers
  3.        Organization of # of coupons sold

Wish me luck in our class tomorrow!

-Robin

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2 Comments leave one →
  1. November 5, 2010 5:50 pm

    Really great post. I have been wondering about Groupon for quite some time. I agree with the fact that most people who use Groupon are deal-seekers and non-returning customers. However, I think if a business gives Groupon a real go and are on there repeatedly, then they can build brand presence amongst people who use Groupon regularly and potentially turn a deal-seeker into a regular customer.

    • November 18, 2010 6:33 am

      Agreed, thanks for your feedback. I enjoy finding ways to make Groupon an effective experience for businesses. I think you are right on. 🙂 Robin

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