Groupon logoGroupon and other crowd sourcing and online promotion sites have been getting a fair amount press coverage over the last few years.

But, looking beyond the hype and the desire to be part of the latest ‘big thing’, how good is Groupon for marketing your small business?

One of my clients, a wedding hair and make-up artist, recently considered running a Groupon campaign and asked for my advice. I had to be honest and say that I didn’t believe it was right for her business. Yes, she would get market exposure for her brand through Groupon, but at what cost to her business?

How it works

The Groupon business model works like this: you advertise a great promotion through Groupon and that is communicated to Groupon subscribers through its daily offers email. When the offer reaches the required number of takers, the customer gets the deal. Anyone who likes the look of your promotion makes the required payment to Groupon in return for a voucher to redeem. Groupon splits the money with you, taking 50% commission. Should someone decide not to redeem their voucher, Groupon keeps all the money. Can you see where I’m going with this yet?!

Straightaway this tells me that Groupon is doing very nicely thank you. Small business are offering major discounts – a 2-for-1 meal or 50% off your next haircut – so you are already taking a big hit on your profit margin, only to lose even more through Groupon’s hefty commission.

Profits will suffer

So my first word of warning is that, whilst promotion through Groupon and other online promotion sites may help achieve volume and turnover, your profit will certainly suffer.

And think about the type of customer you may be attracting through such channels. In all likelihood they are merely looking for a good deal – and who can blame them, everyone wants to save money these days. How likely is it that they will become your loyal customer? They may return to you if you offer a good discount again, or else they’ll just go to your competitor down the road who is offering an even better deal this time round.

Is it simply attracting the wrong customers?

Which leads me on to my next point. Part of Groupon’s appeal is that it gives service-based businesses great exposure to local audiences, and encourages people to try something new. So you can certainly attract new customers, but if you’re going to promote your business through discounts then at least make it work as hard as possible for you. And that means capturing customer details to build your database for future marketing. So if someone books an appointment make sure you take an email address to confirm the booking. And keep in contact and give them compelling reasons to return again and again. You need to recoup some of that lost profit after all!

And my opinion overall?
Groupon is great for building brand awareness quickly and can work for niche and local businesses. But – and it is a very BIG but – profit undoubtedly suffers as a result. You may attract a rush of new customers and possibly achieve some repeat business, but the biggest problem for me is that these customers are not interested in being loyal to your business – and it’s only loyal, long-term customers who will drive sustainable profits.

Have you promoted your business through Groupon or similar crowdsourcing sites? It would be great to hear about your experience and the impact it’s had on your business.