There are many anecdotal stories from both sides of the spectrum when it comes to the pros and cons of Groupons. From the women who got $10,000 worth of cupcake orders and lost money fulfilling each one of them to the pizzeria owner that earned enough cash from his spike in traffic to expand his business. Rather than share stories about either extreme, we’ve compiled some pros and cons of running a Groupon that are applicable to any foodservice establishment: a simple list to help you weigh the potential risks and rewards for your restaurant.
Exposure and Trial- The goal of marketing is to create awareness, interest, trial, purchase, and finally brand loyalty. Groupon, with their daily emails, helps expose your business to hundreds or thousands of potential customers and encourages them to give your business a try. This gives your business a chance to impress these newcomers and make them into loyal, repeat customers.
Quick Cash– Groupons almost always create a surge in sales, even if they don’t always generate profit or loyal customers. As long as you are still making a margin on each item you sell, even if it’s too small to cover your fixed costs, this is a way to get a surge of cash in the door.
Monetary Losses– Did you know Groupon requires you to offer a minimum discount? Because of this many restaurants selling through Groupon actually take a loss on each item they sell. Additionally, handling the crowds drawn by a Groupon often requires more staff than usual and higher payroll costs. Higher costs with lower margins will hurt your bottom line.
Reputation Losses- Regular customers can be put off by the large crowds brought in by a Groupon, especially if handling the extra traffic causes a decline in your service or quality. Many Groupon customers may not become regulars, some may be just looking for a deal and others may be coming way out of their way because of the special offer. If the crowds alienate your regulars without replacing them, the results are real long term losses. Another factor is Yelp rankings. If you depend heavily on your high Yelp ratings as part of your marketing, a Groupon may be detrimental. Studies have shown that restaurants that offer Groupons have lower stars on Yelp than restaurants that don’t.
We hope these pros and cons give you a little insight into Groupon and the things to consider before making the decision to use this type of incentive.
Not ready to dive into Groupon yet?Restaurant Manager’s flexible coupon capability and robust back office reports can help you test out different promotions to find the offer that gets the best customer response while still generating revenue. Once you know what coupons make your business profitable you can use a Groupon to expand your audience to a massive scale. Learn more about Restaurant Manager POS