The Right Way To Use Groupon And Living Social For Your Business

My wife and I don’t often buy Groupon/Living Social coupons, but recently we stumbled upon a few great deals that caught our attention so we decided to give them a shot.

One of the Groupons was for a new fusion restaurant and the other was for a spa. Both coupons offered a 50% discount for their services.

Now Groupon can be a great way to give your service based business some additional customer exposure.

But in our case, my wife and I will NEVER ever go to these businesses again and the reason has nothing to do with quality.

In fact, the food at the restaurant was quite good and my wife had a pretty decent experience at the spa as well. What’s ironic is that there was nothing inherently wrong with the places we bought Groupons for. In fact, if we were not Groupon customers, we might even have gone back.

But these business made a few crucial mistakes that pretty much eliminated their chances of repeat business. And after reading several Yelp reviews, these mistakes seem to be pretty prevalent among businesses using couponing services like Groupon or Living Social.

The Purpose Of Groupon And Living Social

As a small business owner, the purpose of Groupon or Living Social is not to make a short term profit on the sales of your coupon. By the time you slash 50% off your prices and then give an additional 50% of the remainder over to Groupon, you are only making one-fourth of what you would normally make per sale.

Related: Should You Use Groupon For Your Small Business?

Sure, not everyone will redeem their coupons but the upshot is that you should not plan on making a profit from the coupons alone. Groupon and Living Social should be classified as marketing expenses.

The main goal of Groupon and Living Social is to provide mass exposure for your business and hopefully establish some new repeat customers. But the problem with most businesses is that they don’t realize this fact when they jump in bed with a mass couponing service.

And as a result, they screw things up and drive customers away. Here’s are some rules to live by if you decide to use a service like Groupon or Living Social for your small business.

Rule #1: Don’t Try To Extract Every Last Penny

The problem with many businesses is that they think that they can make up the cost of a Groupon by upselling the customer more expensive services. Here’s a common Groupon scenario.

  • Customer walks in the door and presents Groupon
  • Shopowner seems somewhat annoyed
  • Shopowner provides the basic service that was paid for but constantly tries to upsell more expensive services
  • Customer just wants to relax and enjoy the service, gets pissed by the constant upsells and never comes back

As you can probably imagine, it can be really annoying to sign up for a service and be constantly bombarded by sales pitches. As a small business owner, you need to realize that you are trying to impress the customer so much that they want to come back.

So don’t treat your Groupon visitors differently than your regular customers and don’t try to make up for your losses. In fact, you should treat Groupon customers extra special so they’ll want to come back!

Rule #2: Make Sure The Rules Are Absolutely Clear

When my wife and I purchased a Groupon for a restaurant, we had no idea that we needed to present the coupon up front before we ordered (Why the heck is this a requirement anyways?). But there was no indication of this rule anywhere in the restaurant except for a small note posted at the front desk by the business cards.

So while my wife and I had an excellent meal, we were shocked at the end of the night when we discovered that our Groupon was not usable because we didn’t tell the waiter about it before we sat down.

Rules are rules so what could we do? So we left the restaurant paying full price, pissed off and vowed never to eat there again. Plus, we told some of our friends about the experience as well which may deter them from going there in the future as well.

If I were the restaurant owner, I probably would have let the coupon slide. It’s not worth the bad word of mouth for a measely 30 dollars. But why take the chance in the first place? Why impose artificial rules that could potentially piss off a customer?

Rule #3: Do Not Treat Coupon Customers Like Second Class Citizens

Just because a customer paid less for a service doesn’t mean that you should treat them any differently. A customer is a customer and you should provide them with the same level of care, especially if you want them to come back.

So why do businesses treat Groupon customers differently? If you read the fine print of some of the Groupons that you receive, sometimes you’ll notice that your coupon may not be redeemed for certain “premium level” services.

For example if you go to a hair salon, you may only be eligible for a junior stylist. If you go to a spa, your coupon may not be eligible for certain treatments. What is the point of segregating your customers?

If you can’t afford to provide the same level of service for your coupon, then don’t even bother issuing it! What will inevitably happen is that your customer will not have as good of an experience as a “regular” customer and they will never come back.

Rule #4: Make Sure You Have A Unique Value Proposition

If your business is going to sell a Groupon, make sure the customer experience is memorable and that you have some way of standing out among the competition.

If you own a restaurant, make sure the customer gets a taste of your signature dish. If you own a service, make sure you emphasize why you are special.

I’ve purchased several restaurant related Groupons in the past with just mediocre food and ambiance. Now why would I go back to a restaurant with just mediocre food and pay full price?

Word of advice. Don’t even bother selling coupons if your business blends in with the rest of the pack. You will not get repeat customers this way.

The Most Important Rule Of All

So how about this?

Instead of trying to scrape every last dollar from your customer to make up for the heavy discount, why not try something different?

Instead of skimping out on your Groupon customers, why not give them the royal treatment?

The primary purpose of Groupon and Living Social is to provide additional marketing for your business so you should write everything off as a marketing expense. Face the facts! You are probably going to lose money in the short term!

Your main goal is to try and drive repeat business so you should go out of your way and lay out the red carpet for your Groupon customers. If a customer comes to your restaurant with a Groupon, give them a free dessert!

The amount of buzz that you will generate from going out of your way to please a Groupon customer will amplify your word of mouth marketing. Try to stand out among all of the other businesses who are going about it all wrong!

Do you have any Groupon or Living Social experiences to share? I’d love to hear about it.

Ready To Get Serious About Starting An Online Business?


If you are really considering starting your own online business, then you have to check out my free mini course on How To Create A Niche Online Store In 5 Easy Steps.

In this 6 day mini course, I reveal the steps that my wife and I took to earn 100 thousand dollars in the span of just a year. Best of all, it's absolutely free!

Give Me Access To The Free Course!
Enter Your Email Address:

Similar Posts

Have you read these?

17 thoughts on “The Right Way To Use Groupon And Living Social For Your Business”

  1. #2 totally happened to me! I was super pissed when I could not use my Groupon because I didn’t tell the waitress about it at the start. She claims it is because of the way “they ring it up in the system”.

    I also have experienced very poor service at restaurants when using the Groupon, so I have stopped purchasing them completely.

    There have been a couple of “nicer” restaurants that have offered a coupon but then I feel cheap using them…

    So now I’m trying ‘em out on other stuff…carpet cleaning and a tennis racquet. We’ll see how that goes…

    Michelle Marcus

    1. So I gather you would never go back to these places again right? Having to present the coupon upfront doesn’t make sense to me unless these places put a target on your back if they know you are a Groupon customer.

      1. Well I had to go back once more because I was GOING TO USE MY DARN GROUPON!

        I do admit I haven’t been back since.

  2. We have used Groupon once or twice, but I had never heard of Living Social. Usually Groupon deals are for stuff we don’t use day-to-day, so there is an element of hit-and-miss there.

  3. Cherry C says:

    They want to know you are Groupon customer so they can upsell you additional services. I once bought a Groupon for a one hour hair treatment and had to sit through constant upsells of skin care and hair products. Ughhhh

  4. It will be interesting to see if the Groupon fad/business model is sustainable, or ends in a giant coupon crash.

    1. If it continues like it has been, then I see Groupon as a passing fad. BTW, missed you during office hours last night. I thought you were going to attend.

  5. Hi Steve,

    We’ve experienced some of the same issues as you when using Groupons, and some of them have so many requirements that getting an actual “deal” becomes very difficult by the time the actual check comes.

    However, most people don’t know that “repeat business” is really a non-factor when it comes to Groupon. I found this out when looking into doing a Groupon for my own business. The people buying Groupons aren’t looking to try something new, they’re looking for deal and trying something new is a by product of that. Businesses using Groupon received nearly zero repeat business a result of their offer. In fact, it’s such a problem that Groupon has acknowledged the issue and is putting together a rewards program in an effort to try and combat it. This is why people are trying to make a profit on the front-end, because there is no back-end, ultimately. I also have a friend who just did a Groupon for his restaurant last month and he got the initial surge when everyone used their Groupons, but after that, everything went back down to normal and this guy’s food is incredible, his prices are super cheap and he’s a really nice guy.

    However, I don’t think this makes it okay to treat Grouponers like second class. The whole “show me your coupon first” deal really makes me feel like they’re trying to scam me. Like I’m going to get less food, a lower quality food, etc.

    But I think the real issue here lies with Groupon. They are going to have to find a way to make the customer experience better and help the business find a way to keep the customers coming back. I’m not sure a rewards program is going to help that. If they don’t, the customer experience will continue to decline and the customers, who make the wheels of Groupon turn, will abandon the service all-together.

    I’ve also had similar experiences with Restaurant.com gift certificates.

    Chris Elliott

    1. That’s interesting. I was under the impression that the whole point of these services was to get repeat customers. The discounts are way too drastic to make any money even with an 80% redeem rate. I actually found a decent restaurant through Groupon that I plan on going to again but in general most places are forgettable, especially the spas and massage therapists.

      1. I was shocked too when I found out the truth. Ironically, I found out about the horrible return rates right from Groupon when I was going through the process of doing a Groupon for my design company. It was during this time I also talked to my friend who did one. Needless to say, I didn’t go through with it.

        This might have something to do with the current state of the economy too.

        Chris Elliott

    2. Teresa Mathias says:

      Hi. I own one of those painting studios where we all paint the same painting together. I used Groupon to advertise for 6 months and it nearly closed my business. I need that word of mouth marketing and hoped this would be my ticket. Instead, I got $10.00 for $40,00 worth of service and the few repeat costumers I ever got asked for another deal or 50% off as if what I do isn’t really worth what I charge. Month after month I was very busy and only made enough money to pay rent and buy the supplies and couldn’t pay myself. Without Groupon I would be less busy but have a much higher quality customer who values what I do.

  6. I typically only buy from Groupon or Living Social because it is a good deal. I have yet to do repeat business with a company that I have got an online deal from. The only exception is Amazon. They had a $10 for a $20 gift card. Sign me up for that deal every time!

    1. I think Gap offered a Groupon too in the past but I’m sure they were able to negotiate an excellent deal on the revenue share. I strongly believe that if a business leaves an impression, there will be a high chance of repeat business.

  7. You’ve hit the nail on the head as to why I won’t use Groupon and I have stopped the daily emails. A few of my friends had bad experiences using the coupons – they were looked down on as if they were the bottom of the heap type of citizens. One hairdresser even made a trainee do my friends hair instead of the actual hairdresser.

    All bad experiences for Groupon and those establishments. As you say they should be used for marketing – getting footfall through the door – and then being extra special so that person goes and talks about it in a good way.

    Maybe Groupon should “coach” the businesses on best practice for coupon users.

    A brilliant post and thanks for sharing on Bizsugar.com

  8. I have to give Groupon and the likes great props for the hard sell they are able to give on merchants. That being said the merchants I know who do it, really don’t get much out of it. I recently did an analysis of going through a Groupon or running it yourself through Facebook Apps and I can’t seem to find any number where it makes sense not to run it yourself. If you do run one through Groupon or Living Social, make it a cheap voucher such as $10.00. You are almost ensured an upsell, its cheap for people to try and it comes to parity with running one yourself (Almost, its still cheaper to run your own).

  9. Excellent article. I live in Colombia (South America), and Groupon here has 18 investigations for misleading advertising an already 10 fines were imposed on 2011.

  10. Sadly a number of businesses miss the mark on using Groupon to it’s full advantages for everyone involved. My wife and I have had both good and bad experiences with some deals (mainly service) Which is why I’ve designed a free review website for groupon users to share experiences. http://www.rateyourgroupon.com

    We believe that Groupon can be a good thing but it’s going to take some research and information sharing before purchasing a company’s groupons and not be disappointed.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>