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)…
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“