Group Buying Sites: What's the Real Deal?

There is a lot to be said for this new breed of group buying sites, like Groupon or Living Social. Not the least of which is that for the consumer, they offer some unbelievable deals. But one main question that small business owners must answer is whether they will be able to convert all of these new looky-loos into return, repeat customers.

Not a few small businesses who have tried this model answered that question with a "no."

Will you be able to go from loss to leader? A small pizza restaurant owner wanted to be reviewed by a local paper. So he put together some press materials and lo and behold, the restaurant critic bit and came out a few weeks later. That next Friday, there was a five-star glowing review in the paper.

Marketing gold, right?

Wrong. It was a total disaster for the owner. He was completely unprepared for the onslaught of customers that stormed his establishment that night and that weekend. He ran out of dough early and did not have enough staff on hand, so the waiting line grew to an 90 minutes. In the end, he made a lot of people mad. What a wasted opportunity.

That is the same risk businesses take with Groupon. If you are not ready for the masses, if it is going to overwhelm your business, don't do it. Depending on the group buying site you do your deal with, their share of your income will be anywhere from 20% to around 50 percent.

So should you jump on the Groupon bandwagon? Here are the pros and cons to consider:


Exposure: Undoubtedly, maybe the best part of Groupon is that the huge discounts offered by your business via the site will expose your business to a huge number of new people. That's tough to beat. In an era when there is just so much competition, the ability to make an impression on a lot of potential new customers is not to be underestimated.

Sales: The correlation to all of this exposure is that you will sell more, maybe a lot more. People love a bargain and they love to save money, especially these days. So by offering steep discounts on what it is your business sells, you will no doubt sell more. Now will you be able to make a profit? That is the question.

Advertising and Marketing: Another significant factor when considering the Groupon model, aside from increased sales, is that it can also be viewed as a unique way to advertise, market and/or brand your business. Being in business is like being in a room without a light on - no one knows you are there. You turn on the light by marketing your business - that is how new people know you are out there.
So in that vein, if nothing else, a Groupon-type campaign will turn the light on and expose your business to a lot of new people.


Conversions? What do you get when you offer a steep discount to the masses? Masses looking for a steep discount. They may not necessarily be looking for your auto detailing service, but can't pass on the deal. The problem then, and the problem is, will you be able to convert that bargain-hunter into a real, ongoing customer willing to pay your normal prices?

If you have an existing business or are planning a new business, the Pasco-Hernando Chapter of Score is here to help you. We offer free small business mentoring and free seminars throughout the year. Visit our website for the seminar schedule and to request mentoring.
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