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Is Groupon Good for Your Business?

  • Spence Cooper
  • July 27, 2012

Just as Wal-mart has compromised many small US businesses across the country in order to bring consumers lower prices (buying from Chinese suppliers who employ slave labor), so too has Groupon, who in its quest to provide consumers with huge price discounts, depletes 50% or more of a merchant’s revenue on already discounted products.

Because for many businesses, the customers they attract through Groupon aren’t likely to be regulars and most won’t spend much more than the deal value of the coupon — in fact, online customers are often allowed to buy up to three like coupons to the same business.

Groupon’s Flawed Business Model

As The Motley Fool’s Halina Zakowicz explains, businesses offer Groupon’s customers online coupons that provide a discount of 50% or more to your business.

“Groupon takes half of that discounted price, leaving your business with just 25% of the revenue on the advertised good or service. In return, Groupon lists your business on its site and sends customers to your store.”

Many merchants receive little or no profit from the Groupon exchange deals and are not permitted to become involved in their promotional campaign.

“While the basic idea is for Groupon to take 50% of the merchant’s revenues, in some cases the merchant receives no revenues whatsoever on his/her already discounted products.”

Some Groupon merchants become addicted to the Groupon business model because Groupon provides them with up-front cash.

“Groupon’s merchant agreement states that merchants receive 1/3 of the money on their deeply discounted products in 5 days, another 1/3 in 30 days, and the final 1/3 in 60 days.”

Groupon’s cash flow to a business may last for two months, but once customers start redeeming their coupons, business profits begin to slowly erode, forcing them to get another cash fix from Groupon.

Case in point: Posies Bakery & Cafe ended up losing about $10,000 on its Groupon promotion, and Need a Cake Bakery lost the equivalent of $19,500 on its Groupon order, wiping out its profits for the entire year.

In one case, a restaurant owner (Back Alley Waffles) who had accused Groupon of driving him out of business, wasn’t even legally allowed to sell food to begin with.

Groupon Can Jeopardize A Business

Is Groupon Good for Your Business?As Tech Crunch notes, a business arrangement with Groupon can actually jeopardize your entire business because businesses are being sold incredibly expensive advertising campaigns that are disguised as “no risk”ways to acquire new customers.

“In reality, there’s a lot of risk. With a newspaper ad, the maximum you can lose is the amount you paid for the ad. With Groupon, your potential losses can increase with every Groupon customer who walks through the door and put the existence of your business at risk.”

Tech Crunch adds that Groupon is not an Internet marketing business so much as it is the equivalent of a loan sharking business. A company make get cash up front, but pays for it with deep discounts over time.

“Groupon touts a win-win proposition. But the reality is that Groupon usually wins and merchants usually lose. The merchant agreement is one of the most lopsided I’ve seen.”

“Google Offers”

Zakowicz insists “Google Offers” provide much more generous merchant payment terms, with the merchant receiving 80% of his/her money in just 4 days.

“Google also has a higher number of platforms on which it can advertise its Offers, such as Gmail, AdSense and AdWords. Groupon, for the most part, uses subscriber emails to advertise.”

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