For Some Merchants, Groupon?s Real Value is Cheap Advertising

Groupon for merchantsDaily-deal website Groupon remains popular with merchants and customers, offering more than 1,000 deals a day in 48 countries. Yet for some merchants, Groupon is better used as a marketing tool to reach potential customers rather than an easy way to turn a direct profit through deal offerings.

Ian Clarke, owner of Just Grapes wine lounge in Elmwood Park, N.J., said for his new business that opened last year, Groupon was an inexpensive advertising platform, since it is free to launch a promotion.

?I?m looking at it as an advertising game, and if you don?t have a lot of cash to advertise, it is a benefit,? Clarke said.

Though companies may think Groupon will lead to direct financial gain, Clarke said that isn?t so for most. That?s because giving discounts for food or products at 25 percent or less often means a business may not break even off a deal, Clarke said.

Half of a deal?s sales go to Groupon, and the other half go to the merchant via three installments.

Nicholas Halliwell, manager of Groupon?s merchant public relations, said this is done in case a deal goes bad and refunds are needed, or if a merchant shuts down before a deal ends.

Jon Horwich, owner of BounceU, an inflatable playground party venue in Paramus, N.J., said his company does not make money on its Groupon deals.

While he said most businesses would be lucky to break even financially on a Groupon deal, the advertising reach helps to potentially reel in new customers from a large customer base.

?What you?re really doing is making an educated investment,? Horwich said.

Anthony Ciampa, owner of A&A Fine Foods in Lincoln Park, N.J., has run three Groupon promotions. He said his grocery store and deli has profited from the deals, because about 80 percent of his customers spent more than the deals? values.

But the first deal Ciampa ran brought him another concern: A&A Fine Foods saw an influx of Grouponers ? Ciampa estimates about 300 customers of the 1,500 coupons sold ? on the offer?s expiration date.

?We weren?t really prepared with that in the end,? Ciampa said.

The problem was remedied for future deals when Groupon staggered the expiration dates, he said.

The website works to structure deals according to their traffic flows and provides tools to merchants to track how many coupons were sold, how much they?ve earned, when their payments are coming and how much the average user spends, Halliwell said. Still, Groupon advises merchants to prepare for the potential rush of new customers with more inventory and staff, and works to help handle the influx.

According to a July study from Rice University, the more a company uses Groupon, the more it tends to earn. Fewer than half of first-time participants make money on deals, but three-quarters of merchants who do seven or more deals do profit. Overall, about 61.5 percent of merchants make money using Groupon according to the latest survey, done in May, a jump from 55.5 percent in spring 2011.

Groupon does not break down the number of consumers or merchants by region. Worldwide, Groupon has 250,000 merchant relationships for more than 190 categories of goods and services. Ninety percent of merchants have 20 or fewer employees and one-fifth are sole proprietors, Halliwell said.

Groupon?s rapid growth in recent quarters may be declining, following its second-quarter financial results and declining stock.

Groupon?s gross billings, or what it collects from customers, fell for the first time in the second quarter, to $1.29 billion from $1.35 billion in the previous quarter. From April to June, active customers ? those who bought a deal in the past 12 months ? increased 3 percent to 38 million, a deceleration from its first-quarter doubling of active customers since the year prior.

?It?s pretty clear Groupon?s results show that there?s no longer the explosive results that they have had in past quarters,? though the site and other daily deal sites have been expanding overall, said Sean Spielberg, a data analyst at New York-based Yipit, which aggregates daily deals and conducts industry research.

Groupon?s growth ?is not continuing as many people thought, and it?s becoming more of a stable company,? Spielberg said.

Groupon declined to comment beyond its statement, where Chief Executive Officer Andrew Mason said the company had a solid quarter despite troubles in Europe and continued investment in technology and infrastructure.

Source: MCT Information Services