CoverBoom's Blog

Groupon's Downward Slide

April 3rd, 2012 • Posted by KitKat • Permalink

It's not a secret that we aren't fans of Groupon.

Marketing and promotional efforts are great, but our distaste for Groupon is mainly focused on the expensive, 50% commission they require local restaurants to pay on top of a 50% discount that seems like a really bad deal for you.

Groupon is facing a number of challenges as it seeks to grow in their existing markets:

  • Market forces will continue to reduce 50% commission rates.
  • Think about it, wouldn't you rather have 100 patrons with a more reasonable discount and a 20% commission than 300 with a 50% discount and a 50% commission and the accompanied dismal consumer reviews that come with it. If you want to see the numbers, try it out yourself using our Daily Deal Calculator.
  • For restaurants and patrons, daily deal fatigue has set in for the long-term. Independent restaurants are tired of the bargain hunters these deals bring into their business. Groupon attracts customers who will just move from deal to deal, while the patron you want is rejecting the bombardment of deals coming to their Inbox.

All these issues are wearing down Groupon's lead. According to the Wall Street Journal, Groupon didn't anticipate the high rate of returns it experienced during the holidays on high-priced offers like Lasik eye surgery and laser hair removal. Groupon had to revise downward its fourth-quarter revenue and earnings.

So, what should independent restaurants do?

  • The first thing you could do is not run deals at all. This could be challenging when your competition is doing it.
  • Negotiate hard with daily deal sites. 50% isn't set in stone.
  • Use our Daily Deal Calculator to understand the real impact of any deal, and then follow the advice we provide for creating more profitable deals.

What do you think? Do you plan to continue daily deals now?


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