Is Groupon Ruining Retailing?

Recently, a 30-year-old woman came into my custom framing business with a designer purse and a question, “What kind of coupons do you have out there?”

It is indeed a new world. Thanks mostly to Groupon, which is based about two miles from my framing business, this social coupon craze has become a big thing. For retailers, the question is whether it’s a good thing or bad thing. The coupons can drive an awful lot of people into your store, but not every store is prepared for the onslaught. And there’s another issue, one that has gotten less attention: the daily-deal sites are also training people to expect that they can get a coupon for almost anything.

Groupon didn’t invent this problem. There have been coupons all over the Internet for years, but it’s getting worse. As Jessica Bruder wote in The Times last week, there are hundreds of companies chasing Groupon, many hoping to create a regional niche or a product niche. I suspect there will soon be a shakeout among these Groupon clones, but for now, the upshot is that most small businesses that sell a product or service are getting deluged with offers to partner with one or more of the coupon sites. Those offers are producing a lot of confusion and anxiety for businesses. To deal or not to deal, that is the question.

In a previous post, I emphasized that Groupon is advertising and while you don’t pay anything up front, it can be very expensive advertising. I went through the math that I suggest small businesses use to try to figure out whether social coupons make sense for them. There are many variables, including whether a customer spends more than the face value of the coupon, how many  existing customers purchase a coupon, what percentage of the discount customers become regular customers, how many coupons are sold to each customer and the true cost of delivering the additional sales driven by the coupons.

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