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There’s no denying that daily deal sites like Groupon are incredibly effective at getting new customers to visit local storefronts. Despite their powerful ability to generates sales for merchants, the costs that business owners incur by advertising with group buying sites can be overwhelming. Many business owners have reported that daily deal websites have actually done more harm than good for their company. Common problems that businesses experience when offering group buying deals include things like a drop in online ratings (i.e. Yelp), overselling coupons, overbooking appointments, and a lack of staff members to handle the flood of new customers. Many issues that arise from group buying campaigns can be tempered with strategic planning and some foresight but it’s important to remember that each marketing tool has its own limits. While there are many advantages for businesses to use daily deal sites, there are many disadvantages for using social buying sites like Groupon to promote your business as well.
1. Greater expenses – Typical deals featured on sites like Groupon are discounted by 50% off the original retail price. On top of that, Groupon keeps 50% of all voucher sales that it obtains for its clients. Thus, business owners generally earn only 25% of what they’d normally make an any sale generated through a daily deal website.
2. Brand dilution – The huge price cuts that are required to be featured on daily deal sites like Groupon severely damage a brand’s image. This can be especially harmful to brands that are associated with higher quality products and services. By discounting the price your brand becomes susceptible to a reduction in perceived value by the customer. Premium quality product and service providers aren’t the only ones that can dilute a brand. Discount stores that utilize deal websites too often may train their customers to simply wait until the next promotion is offered before making another purchase.
3. Attracting the wrong customers – Some business owners that have used Groupon to promote their services in the past have commented that Groupon buyers are not the kind of customers you want. They’ve complained that daily deal buyers are just out for the deal and they will spend as little as necessary at your establishment in order to redeem their deal. This includes lower tips on average and a lower rate of tipping.
4. Too many customers too soon – The power of group buying can rally enormous numbers of people to your place of business. While it’s always great to earn new sales, the high traffic in a short period of time can be disasterous to a business that’s not prepared. If you don’t have the man power on hand to accommodate this huge influx of new customers, the quality of service you provide for your customers will suffer. As a result you’ll see your online ratings on review sites like Yelp and OpenTable crash and burn.
5. Less online traffic and links – Sure you get the foot traffic to your physical storefront but your website doesn’t get the bump in online traffic it normally does through traditional web based ad campaigns. The diminished online ads results in less incoming links that could be gained by publishers visiting your website via the online ads. Furthermore, daily deal sites feature your business over a single day or two whereas online ad campaigns can increase awareness as long as they’re running.
6. Hiring more employees – The huge influx of new customers that result from your deal offering means you’ll likely have to hire a few extra employees to handle the increased workload. This requires that you create and pay for job listings, setup interviews, and train the new workers. All of that costs extra so you’ll need to take those costs into consideration as well.
7. Lower profit margins – Forget about making any profits from customers that buy deals. Most businesses that offer deals are lucky if they break even. Remember, you’re only making about 25% of what you’d normally earn if your deal discounts the original price by 50% (Groupon takes half too).
8. Short lived exposure – While daily deal sites can generate an enormous amount of attention for your business, that intense spotlight only lasts for a few days. After that, it’s all downhill in terms of deal impressions and the battle to deliver unprecedented customer service to stingy deal crazed consumers begins. Can your business and employees survive that added pressure?
9. No customer addresses gained – Growing one’s customer database may be the single most important goal for a business owner. A strong email list is essential for nearly every business to achieve success in a market. Unfortunately, Groupon and other daily deal websites do not share the buyers’ contact information or email addresses with the merchants.
10. Employee morale may suffer – Business employees have complained that Groupon customers tip very little because they’re trying to squeeze the most out of a deal. Simply put, lower tips combined with heavier workloads may leave your employees clamoring to find another job.
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