How much Groupon (and Groupon competitors) can the market handle? That’s the thrust of Bee business writer Bethany Clough’s interesting piece today. The wild success of Groupon has sparked a number of competitors, including several local ones. (A new local outfit, DrawCrowds.com, just debuted, and it hopes to spread to other cities.) Does Groupon and its ilk pay off? It depends. From Bethany’s story:
A nationwide survey of small businesses by a professor at Rice University in Houston found that 66% of businesses contacted said their Groupon experience was profitable. But about one-third said the deals didn’t benefit their bottom line. Some said the bargain seekers never turned into regular customers, or even came back once to pay full price. And the steep discounts can be particularly hard for restaurants and retailers that have fixed expenses. Service-based businesses and others that see little increase in costs with more customers generally have an easier time, the study found.
The Fresno Philharmonic tried a Groupon offer for its recent Edgar Meyer concert, and the promotion resulted in sales to almost 400 new customers. I noticed yesterday that the Lively Arts Foundation is trying a similar promotion with its Saturday performance of “Best of the Bay 2.” (It’s a great deal: a 47% discount.)
To me, it’s as if Groupon and its competitors are filling the function of the half-price ticket booths and other discounting ticket operations that you see in bigger cities. In fact, I wouldn’t be surprised if an even more nimble competitor to Groupon emerged for performing arts organizations that could be more responsive to last-minute ticket inventories.
Of course, it will be interesting to talk to the folks at the Philharmonic down the road and see how many of those 400 new customers — who brought in relatively little revenue to the orchestra because of the big slice that Groupon takes as commission — become repeat customers.
When it comes to other kinds of business, however, especially restaurants, I’m a little more leery. Tower Dogs is offering a great deal on LivingSocial.com today, for example: Buy a $20 gift certificate for $10. In Bethany’s story, she recaps an incident in Portland in which a cafe owner sold nearly 1,000 Groupons and ended up using $8,000 of her personal savings to cover the extra payroll expense. Bethany writes:
The owner of Twee Boutique & Gallery in the Tower District said she tried Groupon, but wouldn’t do it again. The shop, which sells handmade clothing, jewelry and other items, sold 82 Groupons for $20 worth of merchandise for $10. “For every $20 of merchandise … I only got $4.75,” said owner Melanie Davis.
I’ve also noticed that some social-marketing sites are getting pretty sneaky when it comes to grabbing new customers. For example, yesterday a great deal was available on LivingSocial.com in which you could buy a $20 Amazon.com gift certificate for $10. The sneaky part, though, was that if you spread the link around and got three other friends to buy the same deal, then you got your gift certificate for free. Something about this really rubs me the wrong way. It’s like it’s just one step away from Amway-style multi-level marketing. Can you imagine if our email inboxes and Facebook accounts become littered with friends trying to get you to buy stuff so they’ll get a better deal? It could become really annoying.