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.

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About Steve Chou

Steve Chou is a highly recognized influencer in the ecommerce space and has taught thousands of students how to effectively sell physical products online over at

His blog,, has been featured in Forbes, Inc, The New York Times,  Entrepreneur and MSNBC.  

He's also a contributing author for BigCommerce, Klaviyo, ManyChat, Printful, Privy, CXL, Ecommerce Fuel, GlockApps, Privy, Social Media Examiner, Web Designer Depot, Sumo and other leading business publications.

In addition, he runs a popular ecommerce podcast, My Wife Quit Her Job, which is a top 25 marketing show on all of Apple Podcasts

To stay up to date with all of the latest ecommerce trends, Steve runs a 7 figure ecommerce store,, with his wife and puts on an annual ecommerce conference called The Sellers Summit.  

Steve carries both a bachelors and a masters degree in electrical engineering from Stanford University. Despite majoring in electrical engineering, he spent a good portion of his graduate education studying entrepreneurship and the mechanics of running small businesses. 

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

  1. Michelle Marcus says:

    #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. Steve says:

      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. Michelle Marcus says:

        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. David Leonhardt says:

    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. George says:

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

    1. Steve says:

      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. Chris Elliott says:

    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 gift certificates.

    Chris Elliott

    1. Steve says:

      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. Chris Elliott says:

        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.

      1. ERIC GORDON says:

        I can understand the lose. I discount my coupon as well and find myself doing the work for free. Why doing you give your product a different name and 2.5 the price throw in some cheap wine, snacks and then you make your money back.

        It’s not enjoyable if you know you are losing. remember if you wow them they will tell others. Also, Groupon just bought LivingSocial so that’s even more exposure coming but don’t do it at a lose. think outside of the box, make the same class $149.99 give 50% off then you split the difference with them you have only lost $5… or something along those lines. let me know what you think.

  6. Deacon says:

    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. Steve says:

      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. Sian Phillips says:

    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

  8. Online Store Help says:

    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. Carolina says:

    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. Richard says:

    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.

    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.

  11. Tara says:

    I hear so many horror stories about the way businesses act with Groupon customers and businesses complaining customers never return. I launched a Groupon campaign for my new massage location with great success. I instinctively knew to give my Groupon people the “royal treatment” and I abhor up selling anyways, so that wasn’t a factor. At the end of the services, I gave my clients an incentive to come back with a no pressure scenario. As a result, at least 50% of my Groupon clients return, and I’ve had 100% positive (even glowing) feedback from all of them. I truly believe it’s all about how the business owner views/treats the customers, and also – the type of business matters. This works well for businesses like mine; I’m not losing money on merchandise. I think retail based businesses should really do an in-depth analysis prior to launching a mass coupon campaign – it’s not for everyone.

  12. karl says:

    Couldnt agree mor about being treated badly for using a voucher. I bought a voucher for a hotel (2 night with 1 meal) for myself and my wife. The discount on the hotel may well have been 50% as claimed but there were plenty of others in the same rough price range as the coupon but we got the free meal. The only reasn I bought it was for peace of mind, we knew there was a childs christening in the future but not when so having the voucher tucked away suited us.

    Long story short the christening didnt happen so we travelled purely for a weekend away and to use the voucher. The room was fine, no issues but when we went to avail of our meal we were informed that we werent allowed use the restaurant and could only eat in the bar! We were then handed two raffle tickets and told to present them and tell the barman it was a groupon deal.

    Not only could we not use the restaurant but we couldnt even order from the full bar menu! Handed a cheap and tacky ‘groupon’ menu that had sweet FA on it.

    We were treated like lesser humans and the decreased service which to our minds was exactly as you say above, an attempt to recoup the groupon fee.

    Eould we go back? God no and we have left bad reviews as a result

  13. Rockey says:

    Totally happened to me at a nail salon, got some gels they immediately tried to sell me a pedicure and then when i didn’t want one (it’s middle of winter and was raining outside) the lady was super quick about getting me in and out. She didn’t laugh when i joked with her and spoke in Korean or whatever to her coworkers instead of me, all the while constantly looking toward the door and other customers waiting (i made an appointment) like she could possible be making more money off of them…I will not be purchasing any Groupons for the any nail salons ever again. I wanted to tip her 10 but i couldn’t bring myself to, she made me feel like a nuisance for even being there. I happened to notice a handwritten sign by the register that Read:
    Any Groupon customers getting gels will be charged for removal of any existing polish.
    see this makes sense to me because I was in there all of 10 minutes…and received a dirty when i tipped $5.00, i only did that because she SUCKED.
    Also she only put 2 coats of gel polish when every single other time i’ve received 3 or more coats.

  14. Linda Gatzke says:

    I tried to buy a shrug but after several attempts I gave up as there was a confusion over my e-mail address .Usually,after a purchase they will send a confirmation to my e-mail which didn’t exist in their opinion,yet the money has come off my bank account so now I’m wondering what the heck is happening!!! Is the shrug on the way to me or what? It’s for a wedding so now I just have to sit and hope it is.If I call them I have to have an order number which I don’t have so they can’t help me,yet they find their way to take money.The discounts aren’t worth the hassles!!!

  15. Dee says:

    Some places treat you fine, others not so much. I like Groupon because it allows me to try new places. If I like it, I have come back and paid full price when the deals are over.
    But people do feel “wrong” when they’re paying full price after a good deal. My sister said as much to me. I think businesses should only use these coupon services for a limited time. Too often I find the same deals. Why would I pay full price if you’re still offering the deal.

  16. Candace says:

    I’m a brand new business owner looking to get customers into the door. I haven’t even opened my doors yet but I want to create a buzz once I do. I’ve just started considering Groupon but after coming across your site, I’m thinking that maybe I shouldn’t. My service isn’t unique to my area but I am good at what I do and I love serving people so I believe that my personality and desire to go above and beyond for my clients will help me stand out. Is Groupon a good option for me?

  17. Nancy Robertson says:

    Dear writer: As you said; Groupon should be used as a marketing tool. I would like to bring to your knowledge that I have served over 22000 Groupon customers and my experience is as follow:
    1. No matter how good service and product you provide to these customers; they are always looking for more free stuff.
    2. They will find excuses to ask for a further discount.
    3. They only go out to eat or spend money when they find a Groupon deal, so they are never good paying or repeat customers.
    4. Only time I see these faces when there is a Groupon deal going on and regardless of all the rules; they will act if it’s our fault that they did not read, as I can see in your write up that you like to order things from the regular menu and expect to pay by Groupon deal.
    5. Groupon users are never a spender; they are in my view free loader.

  18. online shopping says:

    Thanks for wonderful info I used to be searching for this info for my mission.

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