Groupon Problems: New Research Shows Daily Deal Websites Have Serious Perception Issues Among Small Businesses

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As Groupon stocks fall to historic lows a new study by Cloud 9 Living reveals negative perceptions of the daily deal industry among small business owners.

Not a single respondent felt daily deal companies had a 'very positive impact' on their industry.

Investors took notice last week when Groupon (GRPN) stock fell to its lowest closing price ever $2.76 per share barely a year after the coupon and daily deal company went public at $20 per share.

Part—although certainly not all—of the company’s problem has to do with a serious negative image issue in the small business community. There are many horror stories from small business owners who struggle to make a profit or to even meet the demand created by a Groupon promotion.

A recent survey of small businesses in the tourism industry reveals just how deep the image problem for “daily deal” sites like Groupon goes, despite research showing a majority of businesses who use daily deal sites make a profit from their coupon offering.

The survey was conducted by Cloud 9 Living LLC, an industry-leading experience gift provider based in Boulder, CO. The company works with more than 500 small businesses in the tourism and hospitality industries in 43 regions across the United States.

The results reveal a lot about how the small business community views daily deal sites like Groupon:

53% of respondents to the survey reported having used a daily deal site like Groupon. Of those only 3% reported a significant increase in new loyal customers, and only 14% reported an increase in revenue in the six months following the promotion.

More importantly, not a single respondent felt daily deal companies had a “very positive impact” on their industry, and only 3% of respondents felt daily deal companies had a “slightly positive impact” on their industry.

The perception problem websites like Groupon have among small business owners is made even more stark when the results of the Cloud 9 Living survey are compared to research by Uptal Dholakia of Rice University.

Dholakai surveyed 641 businesses over the course of three years and compiled revenue and customer data over that time. His study finds that 57% of the businesses surveyed made money using a daily deal site promotion and an additional 20% broke even. The biggest determining factors in predicting whether a Groupon style promotion would be profitable or not were A) how many times the business had executed a daily deal promotion and B) the industry the company was competing in.

Some industries are not very conducive to profitability using a Groupon type promotion, especially the food service industry. Other businesses are much more successful, including tourism, massage therapy, and photography.

The fact that a majority of the respondents from the Cloud 9 Living survey were in the tourism industry underscores the point that Groupon has a perception problem. Even though research shows that some businesses can hold a successful daily deal promotion, especially as they gain experience and are in the right industry, business owners still held an overwhelmingly negative view of daily deal sites.

For more information about Cloud 9 Living’s survey of small business owners, please contact Greg McGuire at gmcguire(at)cloud9living(dot)com.

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