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Small Businesses Are Backing Away From Groupon This Holiday Season

Source: http://www.businessinsider.com/small-shops-skip-groupon-for-holidays-2012-11

This holiday season, small retailers are leaving Groupon off their lists as far as sales strategy goes.

This shopping season is the biggest one of the year, and small businesses often rely on sales made during this period to bring them into the black as the year comes to a close.

A sales strategy that didn’t work during the rest of the year is out of the question for the holidays, says Pamela Springer, CEO of online small business network Manta.

This doesn’t bode well for Groupon and other daily deals sites. Only 3percent of retailers got repeat customers out of daily deals promotions, according to a survey Manta released Oct. 30.

“They’re doubling down on things that work, and leaving things that are less proven or they’ve had experience with and didn’t work off to the side,” says Springer.

If businesses aren’t getting repeat customers out of Groupon deals, they’re losing money, says Anthony Bruce, CEO of retail data analyzer Applied Predictive Technology. Groupon often charges businesses as much as half the revenue of a deal sale, which is usually a drastic discount already.

“If there are future purchases that occur because of a Groupon, that’s great,” says Bruce. “If it’s an incremental visit I wouldn’t have gotten anyway, it’s bad. If it’s a visit I would have gotten anyway but did it with a Groupon, that’s terrible.”

Jennifer Untermeyer says she won’t use Groupon this holiday season, because she lost money on the five daily deals she ran last year for her business, TravelKiddy, an online store that sells toys and games to keep kids busy during road trips or plane rides. She ran her first $10 deal for $20 of merchandise on Eversave last November, trying to snag holiday travelers, and ran four more similar deals on niche mom-! themed d eals sites, hoping to score new customers.

It didn’t work.

“We can tell how many people we’ve had repeat, and it’s eight or nine out of 3,000 deals,” she says. “We ended up in an overall loss, even factoring in the marketing benefits.”

Sales chief Kal Raman says Groupon helps businesses retain customers through its reward program, which is sort of like a frequent-flier program for customers. The program helps businesses track purchases a Groupon customer has made, and after a certain level of spending is reached, Groupon automatically sends the customer a free deal.

“We effectively become their loyalty-management company,” says Raman, who sees Groupon as a great way for retailers to sell inventory they’d otherwise be sitting on. “As a small-business owner, you can aim high, and we can hedge that risk.”

Will Ander, senior partner of retail strategy firm McMillan Doolittle, says liquidation is the only good thing Groupon does for small retailers. “It’s more effective than giving it to the Salvation Army.”

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