Study finds Groupon is more beneficial for consumers than businesses

Sep 29, 2010

Social promotions such as those offered by deal-of-the-day website Groupon are wildly popular with shoppers, but they might not be as big a hit for businesses, according to a recent study by Rice University's Jesse H. Jones Graduate School of Business.

Groupon promotions were profitable for 66 percent of the businesses surveyed for the study, but they were unprofitable for 32 percent. More than 40 percent of the respondents indicated they would not run such a promotion again.

Groupon is a social promotion site that features a daily deal for each city in which it operates and offers consumers a significant discount for a local good, service or event. The discount is valid only if a minimum number of consumers purchase the deal.

Utpal Dholakia, author of the study and associate professor of marketing at the Jones School, conducted surveys with 150 businesses spanning 19 U.S. cities and 13 product categories that ran and completed Groupon promotions between June 2009 and August 2010.

The study provides evidence that "satisfied employees" is the most important factor for the Groupon promotion to work successfully for a business. If employees remain satisfied through the promotion, the likelihood of its profitability is significantly higher. The percentage of discount offered and the number of Groupons sold did not predict the deal's profitability, nor did the percentage of Groupon users who purchased beyond the Groupon's value or purchased again at full price.

"Because the Groupon customer base is made up of deal-seekers and bargain shoppers, they might not tip as well as an average customer or be willing to purchase beyond the deal," Dholakia said. "So employees need to be prepared for this type of and the sheer volume of customers that might come through."

Other findings include:

  • Groupon promotions offer the most benefit for businesses in which the promotion does not cannibalize sales to existing customers.
  • Among the service businesses (restaurants, educational services, tourism and salon and spa), restaurants fared the worst and salons and spas were the most successful.
  • Businesses with unprofitable promotions reported low rates of spending by Groupon users beyond the Groupon's face value and low rates of return to the business again at full price.
  • indicated they had largely negative perceptions of Groupon's competitors.
"I think these findings show that social promotion companies need to better balance consumer appeal with positive outcomes for the small businesses offering them," Dholakia said. "Right now, these deals are tilted too far in consumers' favor."

Dholakia outlined some strategies for success:

  • Use promotions for building relationships instead of creating one-time transactions. Instead of offering $60 worth of food for $30, parcel it out to offer $20 worth of food for $10 over the customer's next three visits.
  • Don't offer discounts on a total bill; rather, offer a specified discount for various products or services.
  • Choose items judiciously to sell unpopular items or use unutilized services through the promotion.

Explore further: Study looks at stock market performance of polarizing brands

More information: The complete study can be found at www.ruf.rice.edu/~dholakia/

add to favorites email to friend print save as pdf

Related Stories

Yelp testing 1-day sales of local coupons

Aug 27, 2010

(AP) -- Review website Yelp said Thursday that it is testing out "Yelp Deals" - large discounts at local businesses that site users can buy on one day only.

Research: Facebook fan pages are effective marketing tool

Feb 18, 2010

Companies that use the popular social-media site Facebook and its fan page module to market themselves to customers can increase sales, word-of-mouth marketing and customer loyalty significantly among a subset ...

Retailers look to stretch out Cyber Monday push

Nov 23, 2009

(AP) -- Retailers are thinking beyond Cyber Monday - a holiday marketing promotion many push for the Monday after Thanksgiving - and trying to spin their discounts into into Cyber Weekends or even Cyber Weeks.

Recommended for you

Which foods may cost you more due to Calif. drought

12 hours ago

With California experiencing one of its worst droughts on record, grocery shoppers across the country can expect to see a short supply of certain fruits and vegetables in stores, and to pay higher prices ...

Performance measures for CEOs vary greatly, study finds

Apr 16, 2014

As companies file their annual proxy statements with the U.S. Securities and Exchange Commission (SEC) this spring, a new study by Rice University and Cornell University shows just how S&P 500 companies have ...

Investment helps keep transport up to speed

Apr 16, 2014

Greater investment in education and training for employees will be required to meet the future needs of the transport and logistics industry, according to recent reports by Monash University researchers.

User comments : 1

Adjust slider to filter visible comments by rank

Display comments: newest first

Roj
not rated yet Sep 29, 2010
"satisfied employees" is the most important factor for the Groupon promotion to work successfully..
Long faces better whatch out!

Employee turnover is not a regulatory issue. Unsatisfied employees are easily removed and replaced. Retail just got a new slogan:

"Get Satisfied or get out"

"Is life Hard? Your Fired"

"Lose that smile, lose your job"

"Got complaints, got your walking papers"

"Go ahead strike, we'll hire that illegal mike"

More news stories

Newlyweds, be careful what you wish for

A statistical analysis of the gift "fulfillments" at several hundred online wedding gift registries suggests that wedding guests are caught between a rock and a hard place when it comes to buying an appropriate gift for the ...

Can new understanding avert tragedy?

As a boy growing up in Syracuse, NY, Sol Hsiang ran an experiment for a school project testing whether plants grow better sprinkled with water vs orange juice. Today, 20 years later, he applies complex statistical ...

Roman dig 'transforms understanding' of ancient port

(Phys.org) —Researchers from the universities of Cambridge and Southampton have discovered a new section of the boundary wall of the ancient Roman port of Ostia, proving the city was much larger than previously ...

Crowd-sourcing Britain's Bronze Age

A new joint project by the British Museum and the UCL Institute of Archaeology is seeking online contributions from members of the public to enhance a major British Bronze Age archive and artefact collection.

Hackathon team's GoogolPlex gives Siri extra powers

(Phys.org) —Four freshmen at the University of Pennsylvania have taken Apple's personal assistant Siri to behave as a graduate-level executive assistant which, when asked, is capable of adjusting the temperature ...

Better thermal-imaging lens from waste sulfur

Sulfur left over from refining fossil fuels can be transformed into cheap, lightweight, plastic lenses for infrared devices, including night-vision goggles, a University of Arizona-led international team ...