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Groupon and LivingSocial – A Small Business Friend or Foe? Part II: The Disadvantages

This is the second post in a three-part series discussing the positive and negative aspects of online deal services such as Groupon and LivingSocial.

Now that you’ve read all about the benefits associated with services such as Groupon and LivingSocial, it’s time to discuss the many disadvantages. Several business owners have run into significant financial trouble and dealt with numerous consumer issues when implementing a Groupon or LivingSocial deal. From the outside, these services may seem profitable and beneficial to your small business. Dig deeper and you’ll find that the popular online discount services can be heavily detrimental to your local business.

Negative Aspects of Using Groupon and LivingSocial Deals for a Small Business

Online discount deals only attract customers looking for a bargain.

One significant downfall of an online discount promotion is that it only attracts customers looking for a bargain or a sale. Typically customers who take part in Groupon and LivingSocial deals have a very low return rate and illicit a dismal spending rate as well. Their only goal is to go into your business, use the coupon and receive your service or product, and leave. As mentioned in the blog post detailing the benefits related to these online promotion services, Groupon and LivingSocial are only responsible for getting customers to visit your business and purchase your product or service. They are not in charge of getting the customer to become a repeat consumer – that’s your job as the business owner. In addition, these deals may upset your current and loyal customers who have been gladly paying full price throughout the duration of

Sales from Groupon and LivingSocial lack brand loyalty, awareness and value.

Customers taking advantage of online discounts characteristically have no brand affiliation or loyalty to the company or brand offering the deal. In fact, the majority of the time, they will even switch their particular brand affiliation or loyalty based on the price of the discount. If you’re searching to create brand loyalty among these consumers, it will take a great deal of effort. When these deal-seeking customers come into your shop, this is your moment to change their perspective and turn them into a loyal customer instead of a one-time bargain hunter. Put your best foot forward with stellar customer service and quality products, and you could potentially have a new repeat customer on your hands.

If your company is dependent on loyal and repeat customers, an online discount deal may not be your best option. Instead, perhaps offer this discount solely to your repeat customers who would be willing to pay full price in the first place. It has been proven that repeat and devoted customers spend 33% more than new customers on average. Why waste your time, money, and resources on attempting to intercept new customers when your loyal customers are right in front of you?

Simply not profitable!

Did you know that Groupon will take 50% of the revenue you earn from their online discount promotion? Between that take away and the steep discounts they make you offer, there is a good chance that you will lose out on a significant amount of money. I bet that as a small, local business, losing money in order to have a quick influx of traffic simply isn’t in the cards right now. Unless you are financially able to endure a loss in order to receive more customers, I suggest that you focus on your returning customers during this period of time. They will willingly purchase your products or services at full price, and gladly.

Not beneficial for all industries.

Certain industries will not benefit from using a discount service such as Groupon or LivingSocial. Food service businesses such as restaurants and catering businesses tend to see the highest pay-offs from online promotions. However, maintenance services with a low customer return rate in the first place do not benefit from Groupon or LivingSocial’s service. Industries that do not warrant frequently returning customers, such as a garage door repair service, have no real use for this service. The discounts your business will be required to give out are quite extensive, and be detrimental to your profits and overall business.

Terms and Conditions are no fun.

Groupon and LivingSocial have several ‘rules’, if you will, with regards to using their service. You must agree to an incredibly drastic discount for your customers – typically between 50 and 75% off.  As mentioned prior, Groupon will also take 50% of the revenue made off of the sale of your store’s discount. So, as of right now, you’re essentially giving away your products and services for a gigantic price cut, and only receiving half of the money earned from the sale. There have been countless tales of small businesses losing a significant amount of money after a Groupon or LivingSocial promotion went wrong. For example, there are instances of Groupon and LivingSocial not capping off the number of coupons/discounts sold, therefore selling far too many. The small businesses couldn’t keep up with this demand and ended up losing more money per customer than originally calculated, resulting in a drastic loss for the company.

As mentioned in our previous post, if you do choose to pursue a Groupon or LivingSocial deal for your business, be sure to plan, plan, and – oh yeah – plan. With all of the rules and restrictions on these deals, you want to be as prepared as possible during the promotional period.

Time to Debate: Deal or No Deal?

Now that you’ve learned about the positive and negative aspects about Groupon and LivingSocial, it’s time to decide whether or not you should do a deal with either of these services. Is your business in a stable financial position to potentially lose a bit of money in order to get more customers through the door? Are you dependent on brand loyalty, or is it alright if you have customers who have no intent on returning? Will your business suffer if you offer a large amount of customers a significant discount? These are all questions you’ll have to ask yourself when debating whether or not to run an online discount promotion with Groupon or LivingSocial.

Groupon and LivingSocial also have pros and cons related to the consumer. Click here to read more.

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