Let's make a deal

The hits just keep on coming for Groupon, the latest being a study which finds that it and other daily deal sites drag down the reputation of businesses that participate. But assuming such a cause-and-effect relationship does indeed exist, my gut tells me that it's not merely the association with Groupon or Living Social that is damaging the reputation of businesses that offer such deals, but their association with one another.

Let me offer an example. A few weeks ago, Groupon in Pittsburgh offered a deal for a car wash, $5 for a $10 car wash. Now that's a low-rent offer. It may be 50 percent off, but it doesn't seem like much of a bargain since you are only saving $5. And how hard is it to get a good deal on a car wash? I still get those Valu Paks in the mail, and there's usually half a dozen car wash coupons in each one. Not to mention the deals that gas stations offer for on car washes for a fill-up. A car wash, as often as not, is an impulse buy.

So if you are a business owner that is considering whether to offer a deal through Groupon or one of its competitor, is that the kind of business you want to be associated with? And what impression does it leave on consumers? It taints the other deals that Groupon offers.

I realize that this may be a flaw inherent with Groupon's business model. You need to offer a volume of deals that appeal to a wide variety of customers. But if I'm a potential investor, my assumption when I see a deal like the car wash offer is that Groupon must have incredibly low margins, or that they are running out of businesses that want to participate.

Which brings me to another popular criticism of Groupon, which is that Groupon purchasers are one-and-done customers for the businesses that participate. Now some businesses are smart and specifically target past Groupon redeemers, sometimes with less costly incentives for them to patronize the business again in the future. If I worked at Groupon, I'd want to collect these best practices and present them as suggestions to merchants considering the program for the first time. In other words, it is Groupon's best interest to help participating businesses convert daily deal users into steady customers. In fact, it may be the only way that Groupon can make a go of it.