Marketing Experts Ask 'How Long Can Groupon Last?'

Make no mistake about it. Groupon, the online source of coupons, can be a great deal for consumers. But consumers had better enjoy it while it lasts, say some marketing experts.

Seethu Seetharaman is a marketing professor at the Olin Business School, Washington University in St. Louis. While Groupon is doing well at the moment, he's not sure the business model is sustainable.

“The only way for businesses to justify the ‘loss leader’ promotion that Groupon uses to acquire new customers is to hope that the acquired customers return to the business in the future and pay regular, profitable prices,” said Seetharaman. “I doubt very much if this is happening.”

Does it drive repeat business?

A Groupon promotion is not profitable for a business unless it drives repeat traffic, as Groupon takes 50 percent of the money collected from Groupon sales, Seetharaman says.

“I suspect for the vast majority of businesses, Groupon is a money-losing proposition,” he said.

In fact, a report released this week by Rice University finds that only 19.9 percent of Groupon buyers returned for a full-price purchase.

“Groupon has not invested much in customizing deals to individual customers, so there is no ‘stickiness’ built in to the customer relationship, unlike Amazon or Netflix, which have built customer loyalty for the long haul,” Seetharaman said.

Bad tippers?

He also argues that employee morale in service establishments, like restaurants and hair salons, may be hurt if Groupon traffic makes the employees’ work life tough with the sudden spurt in traffic from Groupon shoppers.

“Those shoppers are probably more price conscious, less courteous to employees and may not tip well,” Seetharaman said.

And because they are price conscious, they may not return to a business and pay full price, but look for coupons and discounts elsewhere. Their objective is to pay full price as little as possible.

For that reason, Seetharaman believes the business owner’s incentives are not necessarily well-aligned with Groupon's, the consumer's or the employees’.

Seetharaman says that Groupon is onto a money-making model for now, “even if their clients have nothing to show for it.”