Is Groupon Bad For Business?

By Anthony Brooks
Oct 18, 2011, 3:50 PM
6 Comments

(swanksalot/flickr)

Everybody likes a good deal — especially in a down economy. That might explain the explosive growth of Groupon, an online service that offers deep discounts on everything from restaurants to hotels to sporting events.

Groupon has become one of the fastest growing companies in the world. That’s why Google offered to buy it for $6 billion last December, an offer that Groupon passed on as it prepares to go public.

If you’ve never used Groupon, here’s how it works: The company contracts with local merchants and offers online coupons that provide dramatic discounts, sometimes as much as 80 percent. Consumers save a lot of money, and merchants get a slew of new customers. Well, in theory.

There’s just one multi-billion dollar question: Are daily discount sites like Groupon a good deal for businesses? The jury is still out, though a number of recent studies are raising doubts.

The latest study comes from a team of researchers at Boston University who concluded that merchants who work with Groupon do get a surge of new customers. But that increase may be short-lived, and might end up hurting businesses in the long run.

John Byers, co-author of “Daily Deals: Prediction, Social Diffusion, and Reputational Ramiﬁcations” and associate professor of computer science at Boston University, joins us to discuss the issue with Ben Edelman, assistant professor of business administration at Harvard Business School and co-author of “To Groupon or Not to Groupon: The Protability of Deep Discounts.”

Guests:

John Byers, associate professor of computer science at Boston University
Ben Edelman, assistant professor of business administration at Harvard Business school

me

Businesses are not having guns held to their heads to do deals with Groupon. Why do we care if a business isn’t shrewd enough to protect itself? Groupon isn’t the the only way a business can make a bad decision.
non-yelper

Considering recent allegations of extortion against Yelp, John Byers should be careful about using information gleaned that website to support his hypothesis.
http://scooponmerchant.com Wendy

Groupon should work well for the merchant when they can upsell during the initial visit. Otherwise, they should be careful. But I want to point out that even if the Groupon subscriber doesn’t purchase, they are exposed to the business and its probably excellent advertising. Also a point that wasn’t mentioned is a merchant can and should rationalize a Groupon to an existing customers as a loyalty play.

My bet is the merchants will start looking for businesses that help them get local and loyal customers.
http://pulse.yahoo.com/_3IKLMLXHL25GHZSI2E2UTR5RM4 Margaret

Ha. Just read about Byers’ study here:

http://journalistsresource.org/studies/economics/commerce/daily-deals-groupon-livingsocial/

Seems like Groupon is great for customers, but a mixed bag for merchants.
Harrybudd

The BU Study is useless. I can believe that intelligent people spent this much time and effort to come up with……basically no answers. I can tell you that I live in a smaller market than Boston, where these kinds of programs have been run for years now. Groupon is nothing new, simply an idea cloned from programs like “Half off Meal Deal” and “Dollar Saver” that hve been running for years. These programs have been run mostly with radio stations and have had good success stories. Most merchants in the real world out here say they have helped increase traffic in their stores. The Groupon model is cost prohibitive because Groupon has to put local sales people in each market to sell the program (a big cost). Groupon will go out of business most likely. Read this from an MSNBC article:
Their company was only founded in November 2008, and already it has accumulated $522 million in losses.
Sure, it has 83 million subscribers. But just 15.8 million of them have ever bought anything at all.
Full article at:http://money.msn.com/investment-advice/latest.aspx?post=65c3b0e2-9b81-4f47-82cc-a6f4167b5287&_nwpt=1
Tonya

Groupon and it’s copy cats are bad for business. It has definitely been bad for mine. Most of the clients attracted by group discount deals are most certainly not the kind any business would want. Groupon lies through their teeth, making all sorts of false promises to merchants in order to get them to offer a deal. That’s why the majority of merchants who do make the mistake of offering a group-deal discount do not make that same mistake again. Once Groupon and its clones run out of merchants who don’t know to stay far away from them, they will all start to go out of business – hopefully they won’t take a lot of small businesses in their wake.

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Is Groupon Bad For Business?