Discount Sites Expensive for Many Retailers

March 9, 2011  |  

(Businessweek) — More than 60 million people subscribe to Groupon, the discount-coupon website, and the Chicago company says an additional million are joining every week. Shoppers clearly love the 50 percent to 90 percent savings they can snap up on smartphones. Small retailers that partner with the growing site and with such competitors as LivingSocial and BuyWithMe report mixed results.  Rice University marketing professor Utpal Dholakia surveyed 150 small businesses that undertook Groupon promotions from June 2009 to August 2010. He found the promotions profitable for 66 percent of the businesses surveyed and unprofitable for 32 percent. More than 40 percent indicated they would not run such a promotion again.

Groupon takes exception to Dholakia’s findings. “We run 900 deals a day and we’ve repeatedly polled 30,000 merchants, which is everyone we’ve worked with to date. When we ask, ‘Would you want to be featured again or recommend us to another merchant?’ 95 to 96 percent say ‘yes,'” says company spokeswoman Julie Anne Mossler. She says Dholakia polled businesses too soon, before they had a chance to calculate total return on investment on their deals. “His sample size was really, really small. Besides, we don’t position ourselves as a profitability machine,” Mossler says.  For some entrepreneurs, the promotions work well. Melissa Carias, 33, has twice offered half-off coupons through LivingSocial, gaining 14 regular clients for her dance fitness studio, Vivafit, in Guttenberg, N.J. “It’s so expensive to advertise. This is a way for me to reach new people and it’s my job to keep them around so they buy another package,” she says.

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