A Startup’s Experience with Running a Groupon Promotion

Abstract

As daily deal promotions have exploded in popularity, there is considerable debate regarding their benefits and pitfalls. However, empirical evidence regarding the change in revenues and profits resulting from a daily deal promotion for a business, the potential exposure value it provides, and patterns of redemption rates over the course of the promotion is scarce in the public domain. Such knowledge is important to understand the real potential associated with daily deal promotions. To examine these issues, we conduct an in-depth descriptive analysis of the experience of Gourmet Prep Meals (GPM), a Houston-based startup, with running a Groupon promotion. Our results provide evidence of significant exposure value, defined as the increase in sales because of exposure received by the business to the Groupon customer base. For GPM, the Groupon promotion’s exposure value is approximately 140% of its baseline sales over the six month period. We also find that although the promotion itself had no material impact on the firm’s profits, when the earnings from unredeemed Groupons are taken into account, GPM enjoyed a substantial 30% lift in profits compared to baseline levels. The firm lost a small amount of money on the average Groupon user, but more than made up for it from the increased rate of purchase - which was more than three times higher - by full price-paying customers from the increased exposure. The Groupon promotion also helped GPM identify its target customers and fine-tune its product and service offerings. We conclude that the Groupon promotion was beneficial to GPM in multiple ways, and that daily deal promotions can be effective marketing tools for retail startup businesses in local markets to achieve exposure and stimulate sales.

Keywords: social promotions, Groupon, ROI, promotion profitability