Groupon attracted a lot of attention on it’s launch and now, as we look back, we realize what a desperate concept it was, which also reveals why it’s failing.  Most business owners have now figured out that they cannot make a profit by discounting their products and services by 50% and then giving 50% of that to an advertising company.   The real question is why they needed time to figure it out.

Groupon and its participating merchants failed to understand not just basic math but three realities of  consumer behavior.  Below we share the reality check:

1)  Deep discounts attract bargain shoppers, not your ideal client – The Groupon model was based on the premise that if people had the opportunity to experience your service at deep discount they would then see the value of spending more for the same service in the future.  As experience is showing every day that’s not happening.  Groupon customers have proven to be some of the most disloyal customers on the planet.  They are discount shoppers not value shoppers.  For those of you who are wondering, a discount does not always translate into a value, especially when merchants have to cut corners in order to sustain themselves in the deals they offer.

2)  Quality customers want value, not just a discount –  When you cater to bargain shoppers you take your eye off the ball in servicing your ideal client, who is more focused on the overall buying experience and the relationship with you than they are on how cheap their service was.  Most merchants would be better to take the money they paid Groupon and invest in a better customer experience which would then create repeat business with people who won’t haggle with you over how much your stuff costs.

3) Marketing success requires a long term plan – Most merchants failed to understand that for Groupon to work they needed a follow up plan that would encourage customers to come back even if it meant paying full price.  It was naive to think that just because someone had a chance to get a virtually free experience of your product or service that they would automatically come back to you.  Having no plan for nurturing the relationship with the customer after the “daily deal” was over  was simply poor planning.

Hopefully, small business owners have had their fill of gimmick marketing and are now ready to focus on the only marketing that creates consistent and profitable results, which is improving the customer experience and creating and nurturing the relationship with the customer.  It doesn’t always generate an immediate result but it does generate a lasting one.