The proof that Groupon damages your business’s reputation?

It all went a bit pear-shaped, amidst complaints of providers having to give too much money to Groupon, not making any money out of the deals (many claiming they were losing money) and customers claiming that their deals were not being honoured (as a result of the loss-making nature of the deals).

One of the big unknows is one of reputation though – Groupon’s is all over the place (thanks, in part to the recent departure of the Group Head of PR). For the first time, thorough research has been carried out analysing the reputational impact of the businesses that take part in deals – and it doesn’t make for good reading.

The research, carried out by John Byers and Gerogia Zervas from Boston University and Micahel Mitzenmacher from Harvard University studied over 16,000 Groupon deals in 20 US cities between January and July this year. They monitored each deal every ten minutes or so to determine how sales varied over time and also counted the number of Facebook likes that each deal generated.

At the same time, they collected Yelp around 56,000 of them from 2,332 merchants who ran 2,496 deals–examining how merchant reputations changed before and after a Groupon deal.

Interestingly, their methodology looks to be sound as they were able to arrived at more or less the same value of sales through their period of analysis as Groupon announced in their corresponding period figures. Further analysis points to the direct impact that Facebook likes have on word of mouth, contributing significantly to a deal’s popularity.

However, the most interesting aspect (as the graphic shows) is the negative impact Yelp scores by customers who have redeemed the deal. In the cases where the Yelp reviewer mentioned either “Groupon” or “coupon”, review scores were 10% lower than average. In the case where BOTH words were used, review scores were 20% lower. It is worth noting that this is NOT totally indicative of ALL experiences, and the research is based only those reviews which included one or both of these words – the volume of reviews is much more significant.

Groupon’s Hidden Influence on Business Reputation

Evidence certainly lends itself to supporting the Groupon model as not only a profitable but also sustainable one, but my feeling is that a lot of the criticism should rightly be levied at the naive partners not understanding what they are buying in to.

Sure, Groupon sales teams are no doubt aggressive in their approach, but the horror stories of not understanding cashflow and not phyisically preparing for what a deal ACTUALLY requires are aplenty. From poor stock management to physical space in the shop and poor customer service – the groupon deals merely highlight these issues more than you realise.

In the words of the researchers:

“This could indicate that a more critical audience is being reached, or that the fit between the merchant and these new customers is more tenuous than with existing customers”.

The interesting point would be whether or not the deal prompted a typical non-reviewer to post a first time review, or a frequent poster to post a more negative one than usual.

But, whilst it’s easy to Groupon Bash, are the merchants themselves as much to blame? Could or should Groupon be more proactive in preparing a business for a deal? After all, if Groupon are sticking with the line of recruitment marketing being one-off costs, then more merchants having successful deals and therefore repeat deals would make much more financial sense.