Is Groupon’s Deal Marketplace Undermining Merchants?

groupon_picLast week, I attended Street Fight’s NYC Summit and listened to a discussion by Yipit co-founder Jim Moran highlighting trends in the daily deals space. One of his major focal points was Groupon’s Deal Marketplace initiative, which was launched late last year.

The Deal Marketplace is Groupon’s shift in strategy from providing one-off “daily deals” to offering longer-running, recurring campaigns. With the launch of the marketplace, local businesses now can offer discounts on their goods and services for an extended period of time.

Initially, when daily deals companies like Groupon and LivingSocial exploded in popularity during the economic downturn, they promised to bring local businesses hundreds of new potential customers by placing their promotions in front of the deal providers’ millions of e-mail subscribers. It has been my understanding that the purpose of daily deals is purely customer acquisition — to bring in new customers, not to target your existing ones.

With the new marketplace focus, however, it seems as though this is no longer the case. I recently did a quick Google search for some of Groupon’s top New York City Marketplace offers and I found that Groupon seems to be cannibalizing the local businesses’ existing customers by using Google AdWords to bid on nearly every Marketplace deal’s local business name:

Above All Cruises

Demetriad Photography

Vada Spa

 

Platinum Salon

This new strategy seems unfair to the local businesses working with Groupon. It’s one thing for Groupon to advertise on keywords within your category, but entirely another issue when they begin to bid directly on a business’s name. By doing this, existing customers who are already searching out the local business are being directed first to the deeply discounted Groupon deal.  This strategy is hugely beneficial for Groupon, but very detrimental to the local businesses that stand to break even or lose money from the deal.

To my mind, Groupon shouldn’t really be earning revenue from existing customers who are already searching out a local business, but from new customers who only purchased the deal because they found it on Groupon’s site or in a daily email.

For many of us who work in hyperlocal that have strived to build truly beneficial technologies to help SMBs, we have done it for our passion to help local businesses succeed. Companies that pull tactics like these give everyone in the space a bad name. It’s my hope that Groupon will stop this deceptive practice.

Do you agree or disagree? I’d love to hear your thoughts in the comments.

Sean-BarkulisSean Barkulis is co-founder of UPlanMe, a hyperlocal, technology platform that helps local businesses market and promote their specials and events across the web.  Through UPlanMe Consulting, he provides local businesses with full-service digital marketing solutions. He is also author of “How to Market Your Business Online.” He can be reached via Twitter at @SeanBarkulis.

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  1. Dana
    November 1, 2013

    Hallelujah! A piece about how these daily pirates are ripping off their own customers. I gotta tell ya Sean…..I am trying to crack the SMB nut too. I’ve watched UPlanMe and think it’s a great tool. Mine is different, albeit still DIY, but more of an offer posting marketplace. The merchants who are completely clueless about what a ripoff the daily deal purveyors are astounds me. The analogy I keep hearing about my project, and I’m sure you did too, is the chicken or the egg. Well I’m going to apply another to this article’s focus……..the tortoise and the hare. A lot of business fast does not make it good business. Hit me at gmail danaphilipward.

    1. seanbarkulis
      November 1, 2013

      Thanks, Dana! I’m sean at UPlanMe.com.

  2. David Kyle
    November 1, 2013

    That makes my blood boil!

  3. timcolling
    November 1, 2013

    If those companies have names that are registered trademarks, can they notify Google in some way to prevent this from being done, for their trademarks?

  4. timcolling
    November 1, 2013

    If those companies have names that are registered trademarks, can they notify Google in some way to prevent this from being done, for their trademarks?

  5. timcolling
    November 1, 2013

    If those companies have names that are registered trademarks, can they notify Google in some way to prevent this from being done, for their trademarks?

  6. timcolling
    November 1, 2013

    If those companies have names that are registered trademarks, can they notify Google in some way to prevent this from being done, for their trademarks?

  7. timcolling
    November 1, 2013

    If those companies have names that are registered trademarks, can they notify Google in some way to prevent this from being done, for their trademarks?

  8. timcolling
    November 1, 2013

    If those companies have names that are registered trademarks, can they notify Google in some way to prevent this from being done, for their trademarks?

  9. timcolling
    November 1, 2013

    If those companies have names that are registered trademarks, can they notify Google in some way to prevent this from being done, for their trademarks?

  10. timcolling
    November 1, 2013

    If those companies have names that are registered trademarks, can they notify Google in some way to prevent this from being done, for their trademarks?

    1. David Kyle
      November 1, 2013

      they can make a blanket trademark request to Google legal. The reality is most SMB’s will not have an enforceable trademark. I’ve been involved with a trademark request. They want all the proper documents before they will honor it.

  11. timcolling
    November 1, 2013

    If those companies have names that are registered trademarks, can they notify Google in some way to prevent this from being done, for their trademarks?

  12. timcolling
    November 1, 2013

    If those companies have names that are registered trademarks, can they notify Google in some way to prevent this from being done, for their trademarks?

  13. timcolling
    November 1, 2013

    If those companies have names that are registered trademarks, can they notify Google in some way to prevent this from being done, for their trademarks?

  14. timcolling
    November 1, 2013

    If those companies have names that are registered trademarks, can they notify Google in some way to prevent this from being done, for their trademarks?

  15. timcolling
    November 1, 2013

    If those companies have names that are registered trademarks, can they notify Google in some way to prevent this from being done, for their trademarks?

  16. timcolling
    November 1, 2013

    If those companies have names that are registered trademarks, can they notify Google in some way to prevent this from being done, for their trademarks?

  17. Aplus PPC
    November 1, 2013

    Companies should tell groupon not to bid on their business name / TM or TM+ terms for the promotion in the contract they sign with Groupon.

    1. seanbarkulis
      November 1, 2013

      I agree. Unfortunately, most local businesses don’t understand this concept. That’s why Groupon can get away with it.

      1. Nicholas Halliwell
        November 1, 2013

        Merchants
        are able to opt out at anytime, and only a few businesses have chosen to do so. This form of
        advertising has been well received by both consumers and merchants.

    2. olafpijl
      November 1, 2013

      I tried this for a client, but Groupon insisted that they, at all times, need to be able to bid on, and use the clients brand name in their ads.

      To me that’s a tell-tale sign that their “success” depends on ripping off brands.

  18. Guy Martin Smalley
    November 1, 2013

    I just asked for an explanation on their facebook page. Great article.

    1. Guy Martin Smalley
      November 1, 2013

      and… it was taken down within 30 seconds…

      1. seanbarkulis
        November 1, 2013

        Clearly

      2. Nicholas Halliwell
        November 1, 2013

        Appreciate you letting us know. Please know that we do not censor posts to our Facebook page, or any Groupon social media channel, unless it contains profanity or attacks another community member. We have located your post, and it because it contained a shortened 3rd party link, it was automatically flagged as potential spam by Facebook. For your reference, it is visible if you click the “Posts by Others” filter located at the top of our Page’s wall.

    2. seanbarkulis
      November 1, 2013

      Thanks, Guy!

  19. mediaman64
    November 1, 2013

    This just seems wrong on so many levels.

    1. Nicholas Halliwell
      November 1, 2013

      Merchants
      are able to opt out at anytime, and only a few businesses have chosen to do so. This form of
      advertising has been well received by both consumers and merchants.

      Nick Halliwell – Groupon PR

      1. olafpijl
        November 1, 2013

        Merchants don’t opt out because they don’t know what’s going on. The clients we showed what was going on, were livid as well anc cancelled their agreement with Groupon, or requested brand protection from Google.

  20. Nicholas Halliwell
    November 1, 2013

    Hi Sean,

    Obviously, you’re just trying to bash a more successful competitor in the small business marketing space.

    We’ve worked with thousands of merchants that have built their entire business through Groupon. And we’re extremely proud of that fact.

    We regularly promote our merchant partners through search engine marketing to help maximize the success of their Groupon deals. This form of
    advertising has been well received by both consumers and merchants. Merchants
    are able to opt out at anytime, and only a few businesses have chosen not to do
    so.

    Thanks,

    Nick Halliwell
    Groupon Public Relations

    1. Nicholas Halliwell
      November 1, 2013

      EDIT:
      Merchants
      are able to opt out at anytime, and only a few businesses have chosen to do so. This form of
      advertising has been well received by both consumers and merchants.

      1. seanbarkulis
        November 1, 2013

        I’d like to know how easy they are able to opt out. Is this in the fine-print or is it clearly discussed with the customer?

        I’d love to see some stats that show “this form of advertising has been well received by merchants”

        1. olafpijl
          November 1, 2013

          I’ve contacted Groupon for a client to request them to stop bidding on their brand name. They wrote back that it’s their right and that they can press charges against the client if they would restrict Groupon in using their brand name in their advertisements.

          The client decided to deny Groupon the use of their brand name. They never got sued, but Groupon bookings plummeted. On the other hand, sales didn’t change and revenue went up.

    2. seanbarkulis
      November 1, 2013

      Nick, I fail to see the logic here. If I purposely google “Platinum Salon” because I was intending on scheduling an appointment with them (at full-price), how does you bidding on that name work well for them?

      What value add has Groupon provided to Platinum Salon in that situation? Other than giving customers a massive discount that they may have already planned on paying full-price for.

      The fact that you try and spin this is absurd. I heard from a customer today who called to complain about this practice and your Groupon rep said, ” It’s not us, it’s Google doing it because we’re so big.” Why are your sales reps lying to your merchants if this practice is beneficial?

      Let’s call a spade a spade here and just admit you’re knowingly bidding on your merchants because it brings you more profit and sells more deals.

      PS – Leave it to a PR rep to try and diffuse the claims by saying “I’m just bashing a more successful company”

    3. seanbarkulis
      November 1, 2013

      One additional comment here Nick. I’m not “bashing” Groupon’s business model of bringing new customers to merchants. I agree that it does indeed provide a value-add service.

      I’m only questioning the practice of targeting existing customers who are already willing to pay full-price for a merchant’s services.

    4. David Kyle
      November 1, 2013

      Hi Nichoals

      Obviously you are the typical slimy PR type who uses multiple logical fallacies to try and win an argument. Your position is complete nonsense. Any honest advertising person knows that this is STEALING. You are promoting to people already familiar with and actively seeking the brand/service in question. As Sean stated, these are people already willing to pay full price to the merchant. You are a joke, and so is Groupon.

    5. Guy Martin Smalley
      November 1, 2013

      “Merchants are able to opt out at anytime, and only a few businesses have chosen to do so.” Nice try. Thats got nothing to do with the issue at hand. Two simple questions Nicholas: 1. Are your customers aware that you are deliberately targeting traffic that would otherwise be going directly to them. (I guess no) 2. If they are not aware, should they be? (I would say yes) 3. How does hijacking the merchants inbound traffic help the merchant? (It does not.)

      1. olafpijl
        November 3, 2013

        After a client found out what happened, they asked Groupon to “opt out” by not granting Groupon the right to use the clients’ brand name in Groupon’s ads. Groupon threatened to sue the client. The client then wanted to fire Groupon, but Groupon fined client for “damage compensation”. Getting rid of Groupon is a legal nightmare.

    6. guest
      April 21, 2015

      I’ve been dealing with groupon for a few years now. the first two years were awesome as Groupon promised and delivered. this past year I have struggled not only to keep my groupon campaign afloat but also from destroying my business. groupon has found a way not to pay me for $10,000 in past sales through its deposit release schedule because they are quick to give refunds due to the fact that they oversold the campaign. my services are seasonal and without my permission they offered an additional percentage of on black friday. They do not contact you when customers get refunds, they refer you to an encrypted invoice history section on the merchant dashboard in which you have to be a lawyer or groupon employees to understand. those refunds are crucial as I have to purchase hard parts for each customer service and these hard parts are not refundable so I lose twice. your customer service is lackluster at best and none of you obviously received the same training because you are never on the same page. your so called Accounts Payable team has never answered or reached out to me. you should be ashamed of yourself and I can’t believe that you would have the audacity to identify yourself as being associated with Groupon and telling someone else that they were jealous. You are a joke

  21. olafpijl
    November 1, 2013

    Groupon has always done this. And like other “partners” (especially in the hospitality industry) they stipulate in their contracts that you are not allowed to block your brand name for them to use. It’s a very cheap way for them to turn a profit, and very unethical.

    1. seanbarkulis
      November 2, 2013

      Thanks for your feedback, Olaf!

  22. Groupon’s stronghold on the daily deal industry is unfortunately one that chokes not only the Adwords arena but also the profits of many small business owners. It’s sad to hear horror stories of people either going out of business or coming extremely close to it by running deals online to try to bring in new clientele into their place of business. However, for every Ying there’s a Yang…I’ve also heard of many businesses who have made huge profits by using their services. It really depends on what their services are and whether they up-charge consumers once they’re in their place of business.

    Two of my close friends and I have created a company here in Miami Florida and we’re trying to make things right for business owners. We’ve developed a platform where business owners could post their deals online and keep 100% of their profits. With us businesses keep their profits because instead of charging an upfront fee to consumers for the deal on our website, consumers pay the merchant at time of service.

    We launched our website on June 22, 2013 and slowly but surely we’re gaining traction. We need a small spark to set things off. The right set of eyes looking at what we’re trying to do will really help get the word out about us. A successful entrepreneur and investor who has relocated to Miami from Silicone Valley was introduced to us a few months ago and he has taken our company under his wings. Through his mentoring and guidance we’ve teamed up with local start-up incubators and things are really shaping up well. So keep your eyes open for us…while we may be fairly unknown at the moment we’re very close to changing that.

    – Albert

  23. Overbooked Deals
    November 5, 2013

    You said by using Google… But Google is the engine that Groupon uses to sell overbooked experiences and misleading the Google user… sounds like poisoned Hummingbird!

  24. Robert Gold
    November 14, 2013

    In time, advertising will likely be mostly one-to-one. In the near future, consumers will express a want, need or desire; the context will be offered and personal preference will determine how resources are offered.

    This will allow computers to do what they do best — connect specific interests. It will allow each consumer support, to have what is important each moment — real-time.

    This shift might only be a year or two away. We will see.

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