Rice University study finds Groupon is more beneficial for consumers than businesses
Social promotion industry needs to retool to stay viable
BY JESSICA STARK
Rice News staff
Social promotions such as those offered by deal-of-the-day website Groupon are wildly popular with shoppers, but they might not be as big a hit for businesses, according to a recent study by Rice University’s Jesse H. Jones Graduate School of Business.
Groupon promotions were profitable for 66 percent of the businesses surveyed for the study, but they were unprofitable for 32 percent. More than 40 percent of the respondents indicated they would not run such a promotion again.
Groupon is a social promotion site that features a daily deal for each city in which it operates and offers consumers a significant discount for a local good, service or event. The discount is valid only if a minimum number of consumers purchase the deal.
Utpal Dholakia, author of the study and associate professor of marketing at the Jones School, conducted surveys with 150 businesses spanning 19 U.S. cities and 13 product categories that ran and completed Groupon promotions between June 2009 and August 2010.
The study provides evidence that “satisfied employees” is the most important factor for the Groupon promotion to work successfully for a business. If employees remain satisfied through the promotion, the likelihood of its profitability is significantly higher. The percentage of discount offered and the number of Groupons sold did not predict the deal’s profitability, nor did the percentage of Groupon users who purchased beyond the Groupon’s value or purchased again at full price.
“Because the Groupon customer base is made up of deal-seekers and bargain shoppers, they might not tip as well as an average customer or be willing to purchase beyond the deal,” Dholakia said. “So employees need to be prepared for this type of customer and the sheer volume of customers that might come through.”
Other findings include:
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