Social Media

Groupon: Bad for businesses?

Posted by Lori Luechtefeld on September 30th, 2010 at 9:02 pm

There's no denying that social buying is hot right now. Groupon success stories of insane proportions -- including a $4 million one-day deal with the Gap -- have prompted a significant surge in look-alike social-buying services, some of which are targeting specific demographics, like moms.

But wait a minute. We know consumers love social buying. Who doesn't love a good deal? But what about the businesses themselves? Do the data support brands' current overwhelming desire to leverage these new promotional opportunities?

A new Rice University study concludes that Groupon is more beneficial for consumers than it is for businesses. According to the study, Groupon promotions were profitable for 66 percent of the businesses surveyed, but unprofitable for 32 percent. More than 40 percent of the respondents indicated they would not run such a promotion again.

According to the study, promotions are most beneficial for businesses when structured in a way that does not cannibalize sales to existing customers. Among the service businesses studied (restaurants, educational services, tourism, and salon and spa), restaurants fared the worst with their Groupon experiments, and salons and spas were the most successful.

Be inspired. To learn more about social buying and other emerging marketing strategies, attend the iMedia Breakthrough Summit, Oct. 17-20. Request your invitation today.

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