How Effective are Groupon Promotions for Businesses?

Abstract

Although social promotions, especially Groupon promotions, have been wildly popular with consumers, it is unclear how businesses fare upon running such promotions. In a survey-based study of 150 businesses that ran and completed Groupon promotions between June 2009 and August 2010, we find that the promotion was profitable for 66% and unprofitable for 32% of respondents. When compared to businesses with profitable Groupon promotions, those with unprofitable promotions reported significantly lower rates of both spending by Groupon users beyond its face value (25% vs. 50%) and return rates to purchase from the business again at full prices (13% vs. 31%). There was disillusionment with the extreme price sensitive nature and transactional orientation of consumers using these promotions among many respondents. Surprisingly, rather than features of the promotion or its effects, employee satisfaction is found to be the primary driver of the promotion’s profitability. We also analyzed the predictors of number of Groupons sold and whether the business would run another social promotion in the future. Based on these findings, suggestions to modify social promotion offers are provided to better balance consumer appeal with positive outcomes for the small businesses offering them.

Keywords: social promotions, price promotions, coupon, Groupon