What Makes Groupon Promotions Profitable for Businesses?

Abstract

Although social promotions are wildly popular with consumers, it is unclear how businesses running such promotions fare. We develop and empirically test a conceptual framework specifying the determinants of a profitable Groupon promotion. Features of the promotional offer and employee satisfaction are hypothesized to affect customer behavior on the occasion of Groupon redemption and longer-term, respectively, which in turn impact profitability of the promotion. A survey-based study of 150 businesses that ran and completed Groupon promotions between June 2009 and August 2010 provides support to the proposed framework. Businesses suffering unprofitable promotions reported significantly lower rates of 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%). Many respondents reported disillusionment with the extreme price sensitive nature and transactional orientation of Groupon users. Based on these findings, suggestions to modify social promotion offers to better balance the value offered to consumers with positive outcomes for businesses are provided.

Keywords: Social promotion, Groupon, social media, price promotions