These findings feel a bit late since they seem so intuitive to anyone who thinks it through, but I’m still grateful that someone finally said it. With this type of promotion, the lead brand in consumers’ minds will always be Groupon while whatever brand that’s on-deal is transient, and thus secondary. Worse, a Rice University study conducted on 150 companies that ran Groupon deals between June 2009 and August 2010, found that only two thirds of them found the investment profitable. Still worse, less than 60% of restaurants made money off Groupon promotions. Frustrated restaurateurs reported Groupon users only spent the face value, didn’t tip and didn’t return. And worst of all, later users of Groupon were more likely to find it unprofitable than earlier ones. The truth behind all of this is that social deals may make a lot of sense for consumers, but they make increasingly less for brands.
The King of all packaged goods sellers has already walked away from promotional dependency. Last year, Walmart made a lot of news with their self-funded ‘rollbacks’ but when that didn’t jumpstart sales, they quickly returned to Sam Walton’s time-proven, everyday-low-pricing strategy.
So is Groupon still worth billions of dollars? Probably. To somebody. And if you love a deal, it’s definitely worth signing up. But given these research results, those young Turks might want to think twice before rejecting the next big dollar bid that comes their way.
Because they themselves might just be the next drastic markdown.
By Dennis Ryan, CCO, Element 79