Groupon Is No Savior for Small Business

I saw an interview with Groupon's CEO Andrew Mason who said, "We are going to be the savior for small business."

You're kidding me.

In that interview, he went on to say that Groupon was "able to give one business half the number of customers in one day that the business had previously had in the previous 25 years combined."

Think about that...

Mason said they delivered 5,000 customers. Could any small business handle such an influx effectively?

I'll bet your franchisees are hearing stories of the "buzz" of crushing crowds that Groupon, LivingSocial, and the rest of their online discount clones can deliver. They're probably demanding that your CMO and Franchise Advisory Boards have to offer these.

While some of those franchisees might be among those 40 million Groupon subscribers who enjoy getting the deal of the day, my opinion is that you might just be killing your franchise if you allow it.

Why? Because Groupon grows at the expense of those who can least afford it: small-business owners.

A recent study by Rice University's Jones Graduate School of Business showed that coupon clippers are not going to return and make up the difference. The study's author, Associate Professor Utpal Dholakia, said on Promo magazine's website: "There is widespread recognition among many business owners that social promotion users are not the relational customers that they had hoped for or the ones that are necessary for their businesses' long-term success. Instead, there is disillusionment with the extreme price-sensitive nature and transactional orientation of these consumers."

In short, Groupons do not give business owners the profitable return customers they had hoped for. In actuality, these online coupon sites typically return $25 of what you normally charge $100 for. They teach your customers not that it's your brand but a commodity. And that reputation affects your entire system.

Customers wanting to go out to dinner decide that, instead of visiting an old favorite, why not see what restaurant has a recent Groupon? Need a gym? Why pay full price? Just buy a few different discount codes to use in the future. Really like a place? Use multiple email addresses to get around the system and purchase multiples.

Suddenly, instead of driving new regulars to your locations, these sites become a primary source of your own price-sensitive competition.

Purchasers won't return as hoped because they know another Groupon or LivingSocial email will arrive in a week or two with another similar business offering them a similar deal. And so it goes. For retailers. For restaurants. For everyone.

That's why when a Facebook fan alerted me to her experience with a Groupon promotion, I was compelled to look deeper, which resulted in an 11-part blog beginning with her case study and continuing to examine various aspects of the online coupon company claims.

Look, your franchise only gets the fees it charges because there is something unique to your system. When franchisees can think only of attracting new customers, they have as much said, "Regular customers are disposable."

When I was working with franchisees and they were struggling, I had the tough job of telling them to work on why people weren't coming back to their business to begin with: Bitter Betty behind the register, out-of-stocks, not following the system, you name it. Solve those problems and they were profitable businesses.

Keep grasping at straws like Groupon to get "buzz" and your franchise really will need a savior, especially if it is already struggling with cash flow.

Bob Phibbs is The Retail Doctor, helping businesses and franchises of all sizes grow and deliver an exceptional experience for their customers since 1994. Download a free chapter of his latest book, The Retail Doctor's Guide to Growing Your Business.

Published: March 15th, 2011

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