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CHICAGO, IL - NOVEMBER 30: A sign marks the location of the Groupon headquarters on November 30, 2010 in Chicago, Illinois. Rumors are circulating that Google is close to reaching a deal to buy Groupon for a reported $5.3 billion. (Photo by Scott Olson/Getty Images)
When you get right down to it, Groupon's meteoric rise from startup to phenomenon has made the act of running a group deal sexy for businesses.
It might be tempting to run one just out of some desire to keep up with the competition or even for bragging rights -- but a new report from istockanalyst.com says doing so for those reasons would be a big mistake.
There's been a lot written about how unpredictable running a Groupon can be for a business (even the MLB can't count on its influence for a successful deal), and as the service has gotten more commonplace, it's become clearer what its primary role should be for companies: to raise awareness, not raise money.
istockanalyst.com's story elaborates thusly:
Consider that the Gap recently offered a Groupon for $50 worth of merchandise at $25. The Chicago Tribune reported that a whopping 445,000 Gap Groupons were sold. Sound like a savvy way to bring in new customers and boost sales? According to author Bob Phibbs of Groupon: Why Deep Discounts are Bad for Business, retail sales reports showed that this decision may have directly contributed to an 8% loss that Gap showed soon after, leading to the exit of Gap's CEO and marketing director, and having a negative impact on the company's stock! This type of scenario is not limited to Big business: small businesses have been affected too. Consider Posie's cafe in Portland, Oregon. Three months after offering a Groupon coupon, the owner could not meet payroll after losing $8,000 in profits from the discount offer!
There are more sobering statistics revealed, too, like 32 percent of the companies surveyed said that running a Groupon was unprofitable and that a 50-percent off deal dissuades customers from coming back once prices go back to their normal level.
You get the idea: running a Groupon is risky. Know what you're getting into before hopping onto the bandwagon.
Read the full story over at istockanalyst.com.