Groupon reports that 97% of its SMB advertiser-users would happily run another promotion. Deals aggregator Yipit found among a small sample (n=80) of daily deal advertisers that 93% would run another promotion.
These satisfactions levels are dramatic for an SMB marketing product. However a new study (n=150) by an associate professor of marketing at the business school at Rice University found that more than 40% of Groupon advertisers surveyed would not repeat. These results stand in marked contrast to the 90%+ repeat and satisfaction numbers above.
The Rice study went after a national sample of some 360 Groupon advertisers and was able to get 150 of them to participate in the survey. The survey explored the following questions:
How effective the Groupon promotion was in bringing new customers (on a 1-10 scale anchored with 1 = not at all effective, and 10 = extremely effective),
What percentage of these customers spent more than the Groupon amount, what percentage came back to the business a second time, and how satisfied their employees were with the Groupon promotion (on a 1-10 scale anchored with 1 = not at all satisfied, and 10 = extremely satisfied)8.
Whether the Groupon promotion was profitable for their business (yes/no), whether they would recommend it to other small businesses (yes/ no), and whether they would run another Groupon promotion again (yes/ no)…
Profitability question
Two-thirds (66%) of the survey respondents said that Groupon was profitable for them. Yet 32% said it was not.
According to the survey report, the unprofitable SMB group complained that “only about 25% of redeemers purchased products or services beyond the Groupon’s value and less than 15% came back a second time to purchase products at full price.” The second statistic is interesting: less than 15% came back a second time to purchase products at full price.
Restaurants included a higher proportion of business that felt the Groupon experience was unprofitable: “42% of the restaurants in our study (20 of 48) reported unprofitable Groupon promotions. One restaurant owner observed that ‘Most of the Grouponers were what we call ‘deal- seekers’; they felt entitled to special treatment, didn’t spend more than what the Groupon itself cost, they didn’t tip, and most won’t be repeat customers.”
SMBs who said Groupon was profitable “saw twice as many redeemers buying beyond the Groupon’s value (50% vs. 25%) and a greater percentage repurchasing a second time (31% vs. 13%) when compared to businesses with unprofitable promotions.”
The study found that “two factors predicted the Groupon promotion’s profitability: how satisfied employees were with Groupon shoppers, and the promotion’s effectiveness in reaching new customers.”
Willingness to repeat:
According to the report, 58% of SMBs using Groupon would do so again, while “42% of the respondents [said] they would not do so. Even among those businesses that had profitable promotions, almost one in five indicated they would not run another Groupon promotion again.
Source: How effective are Groupon promotions (Rice University school of business, 9/10; n=150)
Many of the dissatisfied businesses expressed the idea that these customers were not the type they were hoping for because they were highly price sensitive and didn’t spend additional money with the business.
Feelings about Groupon competitors
Many of the businesses in the study had used alternative daily deal sites as well as Groupon — and were highly critical of them in many cases:
Many of our respondents volunteered their opinions regarding competing social promotion sites. These respondents largely indicated annoyance at the barrage of calls they receive from these competitors on a daily basis, and most reported a lack of success when using them to offer a promotion. Phrases such as “rip off”, “imitators”, “ineffective”, were employed, and respondents told us that the competitors “never proved anywhere near the results that Groupon did”, and that “Groupon will beat out the competition, it is still the ‘Kleenex’ of the business model.”
This is a single study so let’s be careful. The study itself is conscious of its potential flaws and biases and discusses them. But there is a great deal of detail here and it’s the first survey of its kind to get into this level of nuance, as well as empirically document factors that have started to appear as critical anecdotal reports from individual businesses.
It may be something of a warning or wake up call for Groupon that there are problems that must be addressed in the near term or there could be damage to the company’s reputation.
I’m interested to hear your reactions to the findings in this survey.
____
Related: LivingSocial issues “Merchant Bill of Rights“
October 1st, 2010 at 6:08 am
Andrew Mason’s interview joke about making the numbers up, might now come back to bite him (I think at a TechCrunch even about a month ago on stage). A CEO trying to joke around like that so much, especially about serious issues = not a good idea.
October 1st, 2010 at 2:38 pm
Interesting study Greg, I will share it to a friend who wanted to start dedicated “groupon offers” website in Montreal.
October 1st, 2010 at 2:54 pm
Greg, Seems to me like Groupon is getting survey information from the same source as yellow pages companies. Seattle is considering taxing print directory distribution http://seattle.bizjournals.com/seattle/blog/2010/09/seattle_going_after_yellow_pages.html , yet yellow page publishers have stated that delivering the waste to doorsteps is apart of thier “First Ammendment Rights” of FREE SPEECH. So Groupon gets internal data from surveys concocted from YPA…. that explains it.
I can see why businesses don’t want to repeat… who wants to give work away and slave just to increase volume. It has positives, but don’t ever do group buying and expect to make a profit. That is like buying creative media and expecting the phone to ring off the hook!
October 1st, 2010 at 4:40 pm
Worked with SMB’s in internet marketing since ’99 and some of the quotes about how many customers/redeemers spend more or have become repeat customers is laughable to me. I love working is this space, but their ability to accurately track real results of marketing in their actual business is nearly non-existent. These 25% and 15% types quotes are just not credible… even though I would believe a University based study versus a company driven study.
October 1st, 2010 at 5:01 pm
The specific percentages may not be valid. But the perception of effectiveness is what’s important here — And their satisfaction levels
October 1st, 2010 at 5:59 pm
Hi there , I am coming from the online restaurant world ( I am the co founder of the 1st real time search engine for dining-Bitehunter.com) and i can tell you that restaurants( big part of group buying sites ) won’t repeat many times because they usually lose money doing it , giving such a big discount( pressed by Groupon and others to give such discounts) . When you do the math, taking into consideration the high food and HR cost they can’t sustain such a deep discount. Their way to measure success is bringing new customers and having repeat customers .If they don’t see positive results with these parameters most likely they won’t repeat using Groupon and similar programs
October 1st, 2010 at 9:00 pm
[...] Survey: 42% of Groupon SMBs Would Not Repeat, http://www.screenwerk.com [...]
October 2nd, 2010 at 6:26 am
I agree with Gil, most of Groupon offers in my region will not go under 50% profit of the groupon offer.
Usually, the Small Business turn into a lose (and hope to recoup long term).
October 2nd, 2010 at 8:33 pm
Without some sort of vendor co-op participation I can’t seem to come up with a way to ensure that a Groupon won’t be anything more than a loss leader, big time.
October 4th, 2010 at 3:22 am
Greg, good to see you covering this in light of the Rice study. I did an 11 part series on Groupon using a couple case studies and the dangers to any retailer, service provider or restaurant at http://www.retaildoc.com/blog/groupon-worst-marketing-business/
October 4th, 2010 at 3:47 am
It seems to me that this is just not that great a model for retailers – which sometimes includes restaurants since they have a cost of goods. It’s better for businesses with low or non existent incremental costs or blow out sales. Hence, tour operators are the highest revenue producers.
October 9th, 2010 at 3:27 am
I will side with the objective Rice University study.
Please help us spread the word about the first site, MerchantRock.com, dedicated to helping and connecting merchants who have done deals with Groupon.
MerchantRock.com is where merchants gain strength by sharing knowledge and ideas in order to increase their profits, not Groupon’s
October 20th, 2010 at 8:40 pm
[...] Over at Screenwerk, the indispensable Greg Sterling highlights the most dramatic takeaway from a recent independent survey of Groupon advertisers: 42% of Groupon SMBs Would Not Repeat. [...]
October 24th, 2010 at 1:51 pm
[...] All this makes sense for Groupon — to move from product and channel to platform. It also potentially gives merchants more control over promotions, something they don’t have today with Groupon proper, which has caused frustration and something of a backlash. [...]
October 29th, 2010 at 4:23 pm
[...] merchants have had their gripes about Groupon, the model (a percentage of the value of a transaction) is the preferred business model among a [...]
December 3rd, 2010 at 9:22 pm
[...] of this model and fluff released by company PR reps may, however, be questionable. According to an independent study by an associate professor of marketing at Rice University found that more than 40% of Groupon [...]
December 4th, 2010 at 3:36 am
[...] of this model and fluff released by company PR reps may, however, be questionable. According to an independent study by an associate professor of marketing at Rice University found that more than 40% of Groupon [...]
December 21st, 2010 at 4:03 pm
[...] et dont les achats couvriront vos pertes? Toutes ces questions doivent être prises en compte. Une récente étude démontre que 40% des petites entreprises ayant utilisé Groupon ne répéteraient pas [...]
January 5th, 2011 at 1:12 am
Greg, I’m very late reading this but I did find the disparaging advertiser comments wrt Groupon clones interesting. Have you heard more about that since? Do Groupon deals in actual fact perform better than clone deals and if why?
I enjoyed seeing you described as “the indispensable Greg Sterling” by one poster here. Made me think of The Unsinkable Molly Brown.
January 5th, 2011 at 1:16 am
Malcolm:
I don’t have any additional insight on this. Sorry.
Greg
February 21st, 2011 at 2:38 pm
[...] earlier and more specific Rice study found that 42% of SMBs who had used group buying (Groupon in particular there) would not repeat. [...]
February 23rd, 2011 at 2:46 pm
[...] Groupon also claims that 97% of its SME advertisers would be happy to run another promotion. However, according to the MerchantCircle, even if 11% of the local businesses uses some kind of daily offers and 20% is considering using them shortly, 55% of the businesses that have promoted themselves through promotional networks such as Groupon or LivingSocial would not repeat the experience. Is Groupon just a bubble waiting to burst? [...]
February 25th, 2011 at 8:54 am
[...] de ce monde idéal. Tout d’abord, seuls 15% des gens reviennent dans le point de vente (source : Etude Rice University). Le profil de client attiré par les offres Groupon est donc le pire de ceux qu’une enseigne [...]
June 14th, 2011 at 9:35 pm
I have worked with a lot of companies doing daily deals and my experience supports the study findings that employee satisfaction and ability to reach new buyers are what make a daily deal profitable for a business. In the end, group buying is another form of marketing, and there are costs, whether the merchants pays them in cash, check, or in the form of discounted services. Any deal site that doesn’t help educate the merchant on that is doing bad business.
Also, Groupon is huge, yes, but being the “Kleenex” of the industry may have drawbacks in that any serial deal hunter finds them first. IMO daily deal sites that give a better split to merchants and that offer a value-added (like a donation to a nonprofit chosen by the merchant), help to attract higher quality subscribers and foster a real relationship between the merchant and the customer are a better business model.
July 15th, 2011 at 5:05 pm
[...] how many of those Groupon-wielding customers will ever return to the business afterwards. In fact, a study released in June found that less than 15% of customers came back a second time after the Groupon was over. [...]
July 15th, 2011 at 5:18 pm
[...] how many of those Groupon-wielding customers will ever return to the business afterwards. In fact, a study released in June found that less than 15% of customers came back a second time after the Groupon was over. [...]