Selling group buying to SMBs – how to do it better than Groupon.

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Over at Screenwerk, the indispensable Greg Sterling highlights the most dramatic takeaway from a recent independent survey of Groupon advertisers: 42% of Groupon SMBs Would Not Repeat.

This is surprising, given that Groupon's own site claims 95% of its advertisers would go again, if they could.

See are a couple caveats about the new survey, by Utpal Dholakia at Rice University. For one thing, the sample size was small - just 150 businesses - and it could have been skewed by selection bias: i.e., businesses that felt burned by Groupon may have been more eager to participate in the survey in order to air their grievances.

Still, at a glance the study does make Groupon look bad - and it highlights some challenges for group buying competitors like VendAsta's own Daily Deal Platform 3S.

But I think there are a couple positives that Greg overlooks. First off, fully 66% of the businesses reported that their Groupon promotions had been profitable. That's actually pretty remarkable, given that a) group buying discounts usually start at 50% and shoot way upward from there, and b) Groupon takes a roughly 50% cut on every deal.

In other words, businesses are looking at an effective discount of at least 75% on their Groupon offerings - yet two-thirds of them (in a study that is probably biased towards the least satisfied advertisers) still reported a profit.

The group buying model still has huge advantages over other forms of advertising. The most obvious is transparency. If you asked 150 businesses if they'd turned a profit on a newspaper ad or a radio spot, how many of them could even give a yes/no answer?

Still, we think there are three main ways we can improve on Groupon's approach.

1. Faster reconciliation.

According to this disgruntled business owner, "Groupon doesn’t send you the money after the promotion; they send it to you in 3 installments over the life of your Groupon."

Why would they do it this way? The first priority should be ensuring the satisfaction of your advertisers. They're your primary customers, after all; without a steady supply of deals to showcase, your group buying site is just an empty frame. Promptly paying out the profits from a deal should go some way to alleviating a business owner's fears.

2. Hands-on sales and support.

Here in Saskatoon, where our partner site MySaskDeals has been live for a few weeks and Groupon is just moving in, we've had reports that business owners are feeling harassed by Groupon's cold-calling telemarketers.

We're deliberately partnering with yellow page and other publishing companies because their salespeople have a pre-existing relationship with businesses. They can sit down in person with business owners and talk them through the unfamiliar and sometimes intimidating group buying experience.

For instance, one of the main complaints of the business owners who responded to the Rice University survey is that their staff were overwhelmed with the demands of dealing with the unexpected rush of Groupon customers: They're lousy tippers. It's hard to keep track of which deals have already been redeemed. Some people even cheat by trying to use the same coupon twice! Preparation and good organization can relieve a lot of this stress.

3. Sustainable margins for businesses.

This means carefully crafting a deal to ensure that the website and the business both profit. Simply pushing businesses to offer the largest possible discount might guarantee a big rush of bargain hunters - it might bring in big short-term profits for the website - but in the long run, you'll just alienate your customer base.

  • Mari Lee

    If Rice University’s survey is skewed toward those motivated to voice a complaint, Groupon’s assertion that 95% of businesses would go again must be wildly skewed. Search for “Groupon complaints” for an eye-opening array of dissatisfied businesses.

    The difficulty for most retailers is clear: in order to provide a Groupon coupon that attracts attention, the offer must be so good that it appeals to the coupon hopper customer who probably can’t afford your products or services on a regular basis. Essentially, Groupon coupons attract the wrong customer, and because of Groupon’s share, the retailer pays more per customer than they would with any other advertising method. Television, for example, has long been a staple of local advertising, and the quality of commercials has vastly improved via established advertising agencies such as Retailers can craft a TV offer that they’re comfortable with, and with a well-planned air time schedule, reach many potential customers who might never even venture onto a group coupon site.