My friend Amy, has a store in the outskirts of a major city. While on the phone the other day, she mentioned that her number was sold in mass to internet-couponing and discount sites. Her sheer anger from being called weekly and pitched to Groupon, or Living Social or the other sites that wanted to feature her business dripped from her voice. Most of the companies calling wanted her to discount a gift certificate or special promo to 50% off. As a small business, already struggling to keep her lights on, she couldn’t imagine it. I mentioned to her that I had suggested on Twitter that Groupon’s IPO was the only reason it was still breathing and received a lot of flack. In my research of how Groupon operates, I found some disheartening statistics.

A $50.00 Groupon brings the local economy only $12.50.  Here’s why:

Amy sells a $50.00 gift certificate to Groupon for $25.00. Of that $25.00, Groupon would keep $12.50. Amy would have $12.50 left from each $50.00 Groupon to keep her lights on, hit her margins on the products and otherwise sell the products. With a loss of $37.50, Amy wondered how anyone could possibly sign up.  With the holidays around the corner, the discussion of discounting and small business stayed in my mind.

Groupon,Deals,Deal sites,living social,retrevo,retrevo.com,ipo,shopping,black friday,holidays,trends,study,gadgetology

Just today, while surfing for the news, It dawned on me that I wanted to see what I was mindlessly clicking on, checking out and otherwise viewing. I went to my history and it had the usual staples: TechCrunch, Facebook, drudgereport. It also had a huge amount of ‘discount’ sites. Woot, Groupon, Living Social and more. I had looked for the lowest price on a electric teakettle on Amazon, searched discount tickets for Minneapolis shows and bought Ava some boots off Totsy. My mother will tell you that I have a bloodhound’s nose for sniffing a deal far away. However, my discussion with Amy resonated with me to the point where I sat down and started really looking at the numbers and our culture of extreme discounts and how smaller businesses could still win.  Retrevo states:

“Deal addicts don’t have to wait for Black Friday any longer, they can get a deal “fix” whenever they want from companies like Groupon and other deal sites of the world.”

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Certainly discount sites still have a place, but how can an everyday business survive against such strong discounting?  The answer is simple: Loyalty.

Even in a negative economy, customer experience is a high priority for consumers, with 60% often or always paying more for a better experience.
Source: Harris Interactive, Customer Experience Impact Report

86% of consumers quit doing business with a company because of a bad customer experience, up from 59% 4 years ago
Source: Harris Interactive, Customer Experience Impact Report

It takes 12 positive service experiences to make up for one negative experience
Source: “Understanding Customers” by Ruby Newell-Legner

Want to succeed at sales this holiday season? Here’s a key tip from Arts Marketing:

“Using the exact same deep discount offer you were going to give to Groupon, develop a cheap, but effective mailer and send to your list. Make sure it is an offer that is impossible to pass up, and that the offer leads in design and has a deadline. (note: if you don’t have a large box office staff, then make sure the offer is online only, or you will be swamped). The key is to keep production and mailing costs low–send using non-profit postage and use a discount printer/mail house.”

Reward your loyal customers with special sales, inside information and most of all, allow them to advocate for your company by sharing your unique values and identity. Your business can be more successful simply by utilizing social networking and engaging online.  The truth is, your audience is there and they are waiting to hear from you. Users of social network sites are far more often to engage offline, as shown in the report below. A few statistics caught my eye from Nielson’s Q3 numbers:

If you are anything like me, it’s hard to balance wanting to find the best deals and also wanting to support the local community.  This is why I’m a huge fan of the 3/50 project which celebrates small businesses and local economies. Shops like Amy’s depend on people being willing to drive and spend the time in-store making a purchase. In 2011, statistics showed that in Minnesota alone, $29.2 in revenue was from small businesses. You can view the infographic here. Is Groupon hurting local businesses? Some have compared the giant ‘retailer’ to a Ponzi scheme.  Jose Fierra from the KnewtonBlog states:

“Most local merchants simply don’t have enough value in their collective ecosystem to share anything remotely like this much value with Groupon. This isn’t a stable equilibrium, it’s a suicidal one. The local merchants will have to stop using Groupon en masse not long after they first start experimenting with it.”

One thing is for certain, we’ve become addicted to the cheap, easily-accessible and trendy. If and when Groupon fails, another company might be there to take its place. IPO or not, our local economy has enough challenges, and Groupon isn’t the remedy.