When it comes to shopping, online coupons are considered to be one of the ‘in’ things. Proof of this is the existence and increasing popularity of daily deals sites like Groupon and LivingSocial. In fact, it can be said that Groupon is one of the fastest growing companies ever.
Daily deals companies like Groupon attract customers by offering them budget-saving deals. Groupon partners with major and local companies in order to promote the products through coupon discounts. With the deals that these sites offer, customers can take advantage of the products or service at a price that is up to 80% less than what it originally costs.
For businesses, these deals look appealing because nowadays, online coupons create great interest from consumers. As for the discounts, this would just equate to the business’ marketing costs.
Although this sounds like a good marketing strategy for a business, the downside is that the business suffers a significant loss by offering deep discounts. For instance, Gap recently had a deal with Groupon offering $25 for merchandise that is worth $50. For this offering, Gap was able to sell 445,000 Groupon coupons. According to Bob Phibbs (author of book “Groupon-Why Deep Discounts are Bad for Business”), this promotion may have contributed to Gap’s 8% loss soon after they offered the promotion.
In addition, Groupon deals do not always guarantee that a business will get a customer’s loyalty. Sure, the service or product becomes a hit during its promotion with Groupon. However, some businesses say that once the Groupon deal is finished, only a small percentage of customers actually come back to the service or product at its original price.