Prof: I doubt Groupon customers will come back
I thought I was negative about Groupon. Listen to this guy, in a press release from Washington University.
While Groupon is popular at the moment, the company’s business model may not be sustainable over the long term, says a marketing expert at Olin Business School, Washington University in St. Louis.“The only way for businesses to justify the ‘loss leader’ promotion that Groupon uses to acquire new customers is to hope that the acquired customers return to the business in the future and pay regular, profitable prices,” says Seethu Seetharaman, PhD, the W. Patrick McGinnis Professor of Marketing.
“I doubt very much if this is happening,” he says.
A Groupon promotion is not profitable for a business unless it drives repeat traffic, as Groupon takes 50 percent of the money collected from Groupon sales, Seetharaman says.
“I suspect for the vast majority of businesses, Groupon is a money-losing proposition,” he says.
A report released this week by Rice University finds that only 19.9 percent of Groupon buyers returned for a full-price purchase.“Groupon has not invested much in customizing deals to individual customers, so there is no ‘stickiness’ built in to the customer relationship, unlike Amazon or Netflix, which have built customer loyalty for the long haul,” he says.
Seetharaman also argues that employee morale in service establishments, like restaurants and hair salons, may be hurt if Groupon traffic makes the employees’ work life tough with the sudden spurt in traffic from Groupon shoppers.
“Those shoppers are probably more price conscious, less courteous to employees and may not tip well,” Seetharaman says.
In other words, the business owner’s incentives are not necessarily well-aligned with the employees’ in offering Groupon promotions.
Seetharaman says that Groupon is onto a money-making model for now, “even if their clients have nothing to show for it.”
“As long as businesses keep fooling themselves that the Groupon promotion works, Groupon will keep doing well,” he says. “Since there are far more businesses in a large U.S. city than available promotion slots on Groupon per year, this model seems sustainable for a few years."
Comments
The Groupon consumer experience also does not necessarily lend itself to either loyalty or stickiness.
Some of the "deals" end up having a bait-and-switch feel to them, like one I bought for discounted eye exam and glasses where there were only a limited number of frames available and I ended up getting more expensive frames. Or restaurant "deals" where the fine print excludes alcohol and adds a gratuity.
This feeling of being scammed really does not lend itself to long-term customer loyalty.
Now that the initial novelty has worn off, I pass on the deals unless it is something I know I will buy anyway, just like a regular old paper coupon.
Posted by: DK | June 17, 2011 8:35 AM
I like to save money too, but not at the expense of a small business owner.
Posted by: Coupon Corner | June 17, 2011 6:46 PM
When I was a waiter--pre-Groupon thank god--the "price conscious consumer" (to be polite) was my worst nightmare. I still cringe at the memory of one particularly sloppy coupon, which failed to specify any restrictions. As you can imagine, there was a lot of arguing with angry people holding up to a dozen coupons--presented only at the end of the meal, of course. They inevitably blamed the waitstaff, and failed to tip. The proprietor was quite a stingy man himself, and I don't think he even compensated us for his own mistake. Although hardly clever, he still learned his lesson. I can't see him, or us, having put up with Groupon for long. As a consumer, I have til now placed it in the "too good to be true" category. I think I was right.
Posted by: Peter | August 3, 2011 7:01 PM