Groupon: Does it really help small businesses?

I love a great deal as much as the next person, and in this economy, we are always looking for ways to save the next dollar which is why Groupon has become such a big hit amongst consumers and small businesses who are trying to grow their business. The way Groupon works is that they offer deals in local markets for a certain timeframe (for anything from food to classes to shopping) but the deal only becomes effective after a certain number of people purchase the Groupon. In order to get the required number of subscribers, they use the power of social media to spread the word and get as many people to buy in. Groupon claims that they can increase business and offer great deals for customers, also known as "collective buying power". In the end, the Groupon subscriber will always win out as they are the ones that are getting the daily deals, but how effective is this for the small businesses they turn to Groupon for help with their business?

THE PRO'S AND CON'S FOR SMALL BUSINESSES

With the success of the site, it's no surprise that small businesses would jump at the opportunity to grow their customer base and Groupon offered that opportunity for them but they have to understand how to manage the deals as it could do more harm then good for the business.

PROS

1. Increase your customer base: by offering deals in the market, businesses will attract more customers who are looking to try something new without having to spend tons of money

2. Increase exposure: if customers didn't know you existed, they will now. Small businesses can use Groupon as part of their marketing without having to spend all the money that comes with it (not that I am saying to only use Groupon as their marketing strategy).

3. Increase sales: this goes hand in hand with increase their customer base. Customers that buy into your deal may keep coming back for more which translates into higher sales.

4. Social Media is on your side: Groupon uses social media sites in order to spread the word about local deals (this is how they get the required number of people to activate the deal)which is very good exposure for the business, especially on sites such as Facebook and Twitter.

5. Redeeming Groupons: whether the customer redeems their Groupon or not, the business still profits so there is no loss.

CONS

1. Cutting into profits: some businesses have claimed to have lost money due to Groupon preferring to offering discounts of 50% or more.

2. Handling the influx of business: although more business is good, small businesses need to be prepared for the sudden increase in activity. Some businesses claim that lines get out of control and they have lost customers becuase of the long wait times.

3. Tracking Groupon redemptions: in order to determine whether Groupon is working for the business, it is important that they track the Groupons that are redeemed. This is something that small businesses are having trouble with as they may not have a system in place and something that Groupon does not have streamlined for smaller businesses.

4. Deals not so great for businnes: businesses really need to consider their profit margins before launching a deal with the website. Some deals are meant to promote further purchasing (for example, $10 for $25 worth of food at a local restaurant), if your average meal costs $18 chances are that customers will not spend any more than the $25 and then their isn't much being gained financially.

Esentially, Groupon can do wonders for a small business but fully understanding how the deals work is essential. There is plenty of room for growth and everyone gets a piece of the pie. So next time you get your daily Groupon email give that local restaurant a chance and check them out, it's a win-win situation for both you guys.