That Teowonna!

Is Groupon a Breakthrough or a Bust?

One year ago this week, Groupon began its ascent upon Columbia, SC and forever changed the way many of us save money when we shop, dine out, vacation, exercise and more. With Groupon, group couponing became the easy, hip way to discover, share and take advantage of online deals.

Surely you’ve heard of Groupon. It’s the online coupon service where local businesses offer deals for significantly less than the retail price through the Groupon email system. A minimum number of purchases must be bought online in order for the ‘deal to be on’. Once that threshold is met, consumers can take advantage of amazing deals they probably wouldn’t have otherwise. So what’s not to love? A lot, if you are a small business owner.

Groupons can be a breakthrough or a bust for small business owners. Here’s how it works for them. A business signs up to offer a significantly discounted product or service. Then, unbeknownst to most, Groupon gets half of that. Yes! You didn’t know that, did you? For example, let’s say I sell widgets. Normally, the price of one widget is $30. But in order to offer it on Groupon, I must significantly slash the price, say 50 percent. That means I now have a Groupon deal for $15. But after Groupon takes its cut, I end up selling my beloved widget for $7. Isn’t that something!

Why would a business do that? Well, there are many perks. For one, Groupon has an extensive local database. By offering a product via Groupon, a business owner can get more exposure in one day than he or she can in a whole year on their own. And for two, Groupon has a massive social media presence. Once a deal is sent to everyone in the Groupon regional or local market database, those people then send it to their network of friends on twitter, Facebook and other social media platforms. So it goes back to exposure.

But every type of business does not benefit from Groupon but some can. Here are the best reasons for small business owners to use Groupon.

1. If they are desperate for exposure and have no advertising budget. The primary reason small businesses fail is because they don’t recognize the necessity of advertising. If they did, small business owners would FIND the money to advertise. The concept is simple: if people don’t know about your business, they can not patronize it.

With Groupon, you can advertise with little to no out of pocket expenses because the company will take its portion of the proceeds before you get yours. But you must be careful with this. If you sell a product or service with Groupon, you need to be prepared to honor the deal and give great service. After all, this may be the first time hundreds of patrons are coming in contact with your business. If you don’t, your name may as well be Mud because you just ruined your reputation.

2. Another reason to use Groupon is if businesses have old inventory they want to get rid of. Recently, I saw a Groupon for local boutique, Mahogany Me, for $50 worth of merchandise for $25. Now, to a consumer, this is a great deal. But it can also be a great deal for a business owner if she needs to move some merchandise to make way for the fall collection. Or, let’s say you have an inventory of old workout videos that are no longer moving. You can offer a Groupon to initiate a desire for the products again. After all, they have already been manufactured and are just taking up space… may as well get rid of them, even at a fraction of the cost.

3. And rounding out the reasons for business owners to offer a Groupon is if they are going to service large groups at one time. Here is a perfect example: recently my gym (yes, I do have a gym), FreePlay Athletic Training, offered a Groupon for its membership. For a fraction of their regular cost, a new member can work out for practically nothing. This type of deal is the best use of Groupon because the company is increasing its exposure and really has to do no additional work. I mean, it’s a gym… people go get on a treadmill and work themselves out. Now, with this deal, the new patrons got two free personal training sessions. But even so, with the increased exposure, the company has nothing to lose.

This kind of deal is even sweeter for boot camps, Zumba and other and workout groups because whether you have 8 people or 28 people, you are obligated to teach the class. You may as well offer a $10 Groupon since you are going to teach the class anyway; that’s just extra money for no additional work. Brilliant!

So, while Groupons are undoubtedly a great deal for consumers, they can also be a great deal for small businesses. But they better think about it. It can be a breakthrough or a bust.