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ZEITGEIST ZEITGEIST
Group(on) Dynamics
FDaily-deal sites like Groupon are a hit with consumers. But how well do they work for local businesses?
Full disclosure: I’m something of a Groupon groupie. Like a Pavlovian dog,
I salivate when the emails pop up in my inbox—alluring messages promising 50-per- cent, 60-percent, even 80-percent discounts on the hottest local fitness classes, haircuts, restaurant meals, and other goods and ser- vices. I’ve purchased some 15 to 20 offers from Westchester businesses via daily-deal sites like Groupon, LivingSocial, and Amazon Local. I’m living proof that, from the consum- er perspective at least, daily deals are genius.
But how do businesses fare in this model? Are Westchester companies actually making money and gaining loyal customers from these steeply discounted packages? The answer is yes. And no. And sometimes.
The booming popularity of these daily deals is easily understood. They offer local merchants a fast and easy way to advertise to a huge database of eager email subscribers. And unlike traditional advertising, there is no upfront cost. Instead, merchants have to offer a discount typically around 50 percent, and share the revenue from the purchase of the deals with the daily-deal site. With Groupon, for example, it’s generally a 50-50 split.
“Our goal is to help local companies create customized campaigns by identifying their needs and their goals—whether they want to gain exposure, pull in extra cash, or find new users. Then we coach them on how to best retain these new users,” explains Andrew Graham, Groupon’s city manager of New York.
For some local companies, the daily- deal model has been a godsend. When opening its first location in White Plains, Westchester Burger Company used Groupon as its only source of advertising. Just four days after launching the deal, the restaurant sold more than 3,000 deals ($7 for $15 worth of food) via Groupon. The company, which has since added locations in Rye Brook, Mount Kisco, and Nyack, New York, now offers a Groupon about every six months, with more than 8,900 hungry diners purchasing its most recent offer. “Groupon is a guaranteed marketing tool for us,” says Michelle Bernal, one of the general managers of the restaurants.
Other Westchester businesses have
not fared as well. Nicole Sanders, owner
of Ladimax Sports and Fitness, has used Groupon once since moving her business to
a larger space in Thornwood in March 2013. Though 350 people purchased the offers and roughly 280 have redeemed them so far, being locked into offering a discounted three-, six-, or 12-month membership hasn’t been great for Sanders’ business. A customer purchas- ing a year’s membership at the $200 rate, for instance, nets Ladimax just $100—and no guarantee that they will re-up at the full price after their first 12 months. “The value of my gym and my experience as a trainer goes way beyond what I can offer through Groupon,” Sanders says. “My business doesn’t really fit the daily-deal model, so I don’t plan on doing it again.”
Fitting the model is easier for some businesses than others, explains Larry Chiagouris, professor of marketing at Pace University’s Lubin School of Business. Daily deals are more profitable for companies offering services—such as a massage, a den- tal exam, or a house-cleaning session—than products, he says.
“Companies offering services are only sacrificing their time, not the additional expense of inventory or ingredients or other goods associated with delivering a
product,” Chiagouris explains.
This may explain Elite Dental Studio’s
positive experience using LivingSocial and Groupon to offer X-rays, exams, cleanings, and teeth-whitening services. “These deals were
a great opportunity to meet new clients and expose them to what we have to offer, which we feel is a different experience from most dental offices,” says Lucy Khorram, office manager for the Yorktown Heights practice.
Some of the Groupon and LivingSocial customers who came to Elite admitted
to using these kinds of specials every six months for dental cleanings—possibly indicating that they may not become loyal patients. “But even if these patients do not return, they may refer a friend based on their positive experience,” Khorram notes.
Chiagouris also believes daily deals can work for companies selling “perishable” events like concert or sporting-event tickets. “Companies either capture these perish-
able moments or the money is gone forever. Selling a reduced-price ticket is better than an empty seat,” he explains.
That’s been the case for the Westchester Philharmonic, which has featured half-price concert tickets on Amazon Local and Pavé Life, a deals site for arts events. “We were not expecting to make money from these
Story Amy Roach Partridge
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Q3 2013