Groupon Merchant Reviews: Should A Small Business Run Groupon Deals or Not?
If you poll buyers, an overwhelming amount of them will tell you they love Groupon.
But if you poll merchants both big and small…
Well, that’s another story entirely.
Groupon launched in 2008. The online “deal maker” grabbed headlines immediately. It seemed like a perfect method to enliven your business, so small businesses began to jump aboard the Groupon train.
In short order, many of these small businesses found that they had made a costly mistake.
Many of the small businesses that ran with Groupon ended up full of consumers, but it seemed that for each customer using a Groupon coupon, it was costing the business instead of generating a profit.
What is that?
It all revolves around customer loyalty…
Groupon sales representatives are extremely good at incentivizing their platform, but one of the things they neglect to mention is the lack of loyalty that is imparted in the buyer when the business uses their platform.
Think about it.
You’re a massage parlor and you run a Groupon discount. Normally you charge 90$ per massage, but now after partnering with Groupon you have to cut that in half for the deal and charge 45$.
That’s not so bad really when you think about it, but you also have to run the deal for a minimum period of time and also give Groupon 50% of the gross profit. Now you’re only making 22.50$ per sale.
We personally don’t know a single massage parlor in the entire country that sells massages at that rate, and the truth is, if they did, the masseuses would all quit. No massage therapist out there is going to grind their knuckles against a body for an entire hour for minimum wage.
Many of the small businesses who used the Groupon method discovered that the majority of Groupon coupon users would never visit the business again unless they could get a bargain like they had received from the special Groupon sale. So their loyalty shifted.
In other words, the next week, they’d simply Groupon the massage parlors in the area, and visit a DIFFERENT massage place offering a similar deal. No loyalty.
When we started researching the huge supply of Groupon merchant reviews, we also discovered that even large companies and corporations have suffered outrageous revenue losses from running Groupon campaigns.
The Groupon System
To understand why so many Groupon merchant reviews are negative, you first need to understand how the Groupon system works.
Let’s say that you have an item that costs $100. Business has been slow, and you are approached by a Groupon representative about “jump starting” your customer base.
So you choose to partner with Groupon.
This means you will create a huge deal on that item with a Groupon coupon that the company will use to blast their huge email list.
While these great deals vary, we will use 50% off for this example.
You agree that Groupon will send this blast out for 4 days and Groupon will receive ½ of the proceeds.
Now, do the math!
Your item normally retails for $100. The coupon makes it $50. Groupon receives $25, so you get $25 for each item that normally costs $100.
Sure, you may be losing money on that item, but the representative explains that many of those people will buy other products on top of that item.
But that doesn’t happen!
Do these people keep coming back to your store? Maybe a few, but a lot of them traveled many miles just for the deal and have no intention of visiting your store again.
Here is some more math…
The item you normally sell for $100 costs you $37 wholesale. You had a huge response and your store overflowed with Groupon business.
Sounds cool, but not really.
Let’s say over that 4 days, you sold 1,200 of those items with Groupon coupons. So you sold them at $50 each which means you collected $60,000. But Groupon gets $30,000. Oh well, you still made $30,000.
Now you have to pay your wholesaler for those items remember. At $37 each, you owe them $44,400.
You are in the red $14,400.
The Truth Hurts!
Groupon merchant reviews are full of horror stories. Many small businesses have lost way more than $14,000 and their reputations were also damaged as they were trying to work through the Groupon issue they faced.
We looked at a few merchant reviews and were astounded by what we found.
Worst decision our business has ever done is Groupon. They do not support your business, they do not promote nor do anything but cut into profits by more than 80%! We watched as thousands of dollars went out the door. When we realized how bad we were in with them we immediately canceled our account with Groupon after waiting on the phone for hours, along with back and forth e-mails. We are about 8 months into it and still they will not cancel our accounts and invoice us. I promise if you are a vendor stay away! Jeremy
Here’s another merchant review we found…
Groupon totally rips off the vendors. Besides taking AT LEAST 40% of the cut, they take away another 4%, and then on top of that take the liberty of running sales promotions every single week, that COMES OUT OF THE VENDOR’s hide, NOT GROUPON’s, so after a vendor has reduced his price by 50%, groupon wipes out another 44%, plus promotion runs, so the vendor is essentially getting less than 20% of his original sell price.
Groupon reps change so often, that you cannot ever get a response, and every new person changes the story, and says ‘oh we never offered this or that.’ They also violate their own contractual agreements with vendors by holding back more than the 20% they say they will.
It’s really a very very very bad deal for vendors to do Groupon, bc they end up eroding their own price, and get very very little in return. It’s never made up on “volume”, and every deal a vendor would risk doing is way below their cost. Groupon buyers should just stay far far away from Groupon, and patronize the vendors directly, bypassing Groupon. Groupon does not give you a better deal. They are just scamming both you the buyer, and the vendor too. Mark L.
Those are just 2 of the many terrible reviews by vendors for Groupon. And there’s plenty of litigation going on out there as well.
We don’t want to simply flog the company, so here are some pros of using Groupon…
- You can attract a huge amount of consumers. When you appeal to the “greedy” side of consumers looking for outstanding deals, they will flock to your business in record numbers.
- You can build relationships. If used properly and you treat these new customers with dignity, it is possible to build relationships and acquire repeat business. This typically requires a product or service that does not have a high degree of competition though.
- And, you can sell slow-moving inventory. If you have inventory that has been warehoused for ages, this may be a great method of moving that inventory.
These are all outstanding pros for using Groupon, but doesn’t it make sense to use a program that can give you the same pros at a much lower cost to you?
Instead of paying 50% on each transaction, doesn’t paying under 10% sound much fairer? You really need to take a look at the Vionic pricing plan.
- Groupon attracts only bargain seekers. The primary people that are attracted to Groupon are the same consumers who only purchase “cheap” items. Many of these people will only purchase the coupon offering and nothing more. Just ask some of the vendors who had a Groupon free item or service thinking these people would buy something else. It didn’t happen and they were giving away “Free” the whole time.
- Not profitable. I have yet to find a vendor who said they profited by running a Groupon deal. The margins are just too steep. When you are giving 50% of a bargain price away to Groupon, it is actually costing you to do business on those days.
- Brand damage. While I won’t say that running a Groupon promotion will harm your brand image, the overall outlook by consumers will take a look at all the negative Groupon reviews and it could damage your brand. Secondly, if you are not correctly prepared for an influx of customers, they may give your business a bad review that can also be damaging.
- Repeat business is low. Marketing experts have determined that, no matter what Groupon reps tell you, repeat business is not very lively from running a Groupon campaign. The statistics show that conversion rates for repeat business are around 19%.
There ARE better options
Here at Vionic we put together a team of experts to develop a system that is more cost efficient and has many added benefits in comparison to the Groupon daily deals.
By jumping in with Vionic you can run daily deals that will be posted to your audience on Facebook, at a lot lower cost. We also integrated:
- Photo contests
- and even donations
Unlike Groupon, you have complete control so promotions run when you want. You can receive instant payment unlike Groupon who sends a check when they are ready to.
The complete Vionic system is fully automated and simple to use. Plus there is a support staff ready to help you with any questions you may have.
Marketing is how you build your small business. But the marketing methods you use is the question of many.
At Vionic, our aim is to help small business owners achieve success because we know that if you are successful, we will be too.
One of the best marketing methods comes from using Facebook to attract your target market.
To help you, we developed a comprehensive eBook: The Ultimate 10 Step Guide To Tripling Sales Using Facebook.
There is no cost to get the eBook, just click, fill in your email and it will be delivered to you soon.
Let Vionic help you grow your business. Join us today by checking out our 7 Day Free Trial.