October 7th, 2010
10:47 PM ET

Groupon study looks at culture of 'cheapskates'

Groupon.com the popular social promotion website, may have won over many a tech-savvy bargain hunter, but how do businesses fare when they offer $30 worth of sushi for $10 or other services through the site?

The answer, in short: good and bad, according to a recent Rice University study.

The study looked at 150 businesses that used the location-based service, which offers a daily bargain for purchase in subscribers' hometowns, between June 2009 and August 2010. Of the respondents, 66 percent said the promotions were profitable and 32 percent said they were unprofitable.

What's more revealing, says the study's author, is that 42 percent of respondents said they would not participate in another Groupon promotion.

The problem may have less to do with Groupon, which received positive feedback related to customer service and the exposure the marketing model offers, and more to do with the "cheapskates" and "deal-seekers" the promotions tend to attract.

“People that buy these discount coupons tend to be demanding and appear to only want the discount rather than a relationship with the business they buy from," one salon owner said.

Or, as another salon owner put it:  “The Groupon clients try to swindle you out of more savings. Most of them are cheapskates.”

Groupon and its subsequent imitators have already proved their worth in the brave new world of online marketing, said Neal Creighton, CEO and co-founder of RatePoint, an online reputation management service.

"Groupon is a perfect match for small businesses seeking a large mass of new local customers, but willing to meet the volume of demand among a potentially huge audience and stay in touch with them to ensure their continued satisfaction," he said.

"The power of Groupon lies in its ability to target your local community online and drive patrons in-store to redeem offers and build your customer base.  Through good customer service a small business has the ability to build its brand and reputation through positive word-of-mouth in the local community."

Groupon stands by its own figures related to merchant satisfaction, with 95 percent claiming satisfaction with the promotion and 96 saying they'd do it again. The company also pointed out that it runs 130 promotions nationwide each day, compared with the 150 businesses polled for the study.

"Our merchants have always come first, and we’re constantly improving our education services to help prepare merchants," said spokeswoman Julie Mosser, referring to Groupon's built-in support system for businesses.

"We find the degree to which they prepare is a predictor of how successful the promotion will be," she said. "If you take our advice and prepare for the future, like most businesses do, you'll be satisfied with the results, which most are, as our statistics reflect."

The study's author agreed that businesses who were prepared for rush of customers tended to do better. Most respondents agreed that Groupon worked for getting new customers in the door and an influx of business, said Utpal M. Dholakia, a marketing professor at Rice's Jones Graduate School of Business.

But businesses with a firmly established client base did not necessarily gain much, said Dholakia, who did not consult Groupon for the study.

When it came down to it, the main predictors of a merchant's willingness to participate in another promotion were effectiveness in reaching new customers, percentage of Groupon users buying more than its value during the visit and employee satisfaction with the Groupon promotion, he said.

Restaurants came out as the biggest group of dissatisfied merchants, in large part because of customers who did not tip on the base amount or did not end up being return clients, he said.

Dholakia, an self-described avid "Grouponer" in Houston, cautioned against viewing the results negatively.

"With two-thirds of merchants reporting satisfaction with the service, they have a large base of satisfied customers, which bodes well for their overall sustainability. I think Groupon will be OK," he said.  "What I hope this will make them do is think a little bit and make changes in how they structure their promotions."

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soundoff (69 Responses)
  1. JuliaInNewMexico

    My DH (dear husband) is an avid couponer. We rarely spend or eat out without a coupon or discount [e.g. $6 haircuts at the local beauty school; he buys his xmas gifts for friends & family AFTER the holidays... you get the picture]. I always remind him to leave 15-20% tip on the original price when we eat out [usually on a "buy-1-get-1-free" coupon deal]. But then I leave an additional 15%-20% cash tip under my plate when we leave. They are ALWAYS happy when he (and I) return.

    By the way, all three of my daughters have waited tables over the years. They strongly encourage paying the GRATUITY in cash, not on a ccard or debt card. The computer register keeps track of electronic payments, and at least where we are, they are "assumed" to make 15% tip on each purchase and taxed according, whether they did or not. So when one cheapskate jips them on a tip, they can easily recover with another generous diner's cash tip.

    October 8, 2010 at 8:59 am | Report abuse |
  2. Tax hiders

    The reason your daughters encouraged cash tips is because at most establishments they are not recorded and provided to the IRS for tax purposes.

    October 8, 2010 at 10:52 am | Report abuse |
  3. kylie

    You get tiped based on how your service is. If you suck then you don't get tipped. If your good then you get tipped. If you need to complain so damn much about how people spend their money get a diffrent job. There's no rule or law that you have to tip so if I only have enough money for my food. Oh well I'm not gonna just stay home. Its not my fault that you only get paid 2.15 an hour.

    October 8, 2010 at 12:51 pm | Report abuse |
  4. Julia

    "Why tip someone for a job I'm capable of doing myself? I can deliver food. I can drive a taxi. I can, and do, cut my own hair. I did however, tip my urologist, because I am unable to pulverize my own kidney stones."
    Words of wisdon from Dwight Schrute 🙂

    October 8, 2010 at 2:05 pm | Report abuse |
    • joni

      hey good for you! i am a barber and i can just imagine what your hair looks like if you cut it!
      CHEAP A#%!

      December 9, 2010 at 12:04 am | Report abuse |
  5. Brooklyn Dave

    @kylie – If you can't afford to tip don't go out. It's not the waiters fault that you're broke.

    October 8, 2010 at 2:07 pm | Report abuse |
  6. Radiogurupdx

    Good marketing is not about making your product or service a commodity. Right now, the mass coupon vendors seem bright and shiny but in the long-term it will be just another gimmick and the energy spent will not have resulted in lifting the small business brands to another level or given them share of mind of the "loyal/true consumers" in their marketplace.


    October 8, 2010 at 2:09 pm | Report abuse |
  7. paul s

    that would be teps tips to insure prompt service

    October 8, 2010 at 2:33 pm | Report abuse |
  8. sun goddess

    I LOVE Groupons and have had mostly positive experiences with it. I always tip before the discounted amount, and I tip generously. The only slightly annoying experience I had is when I used a groupon for waxing at a salon. The esthetician rolled her eyes when I mentioned I had a groupon. She still did a good job though, and I tipped her $20 for a leg and bikini wax. I just decided to kill her with kindness.
    There is NOTHING wrong with someone being an avid coupon or groupon user. I clip TONS of coupons and use groupons on a regular basis. No one is shorted any money by my actions. If I like a business, I use them again in the future, whether or not I have a groupon.

    October 8, 2010 at 10:43 pm | Report abuse |
  9. K

    Groupon has a zillion subscribers and spams tons of people – that's why the reason for poor quality of customers - it's a demographic targeting nightmare for businesses. LivingSocial even though it's smaller is getting a much higher quality customer by having a 100% opt-in subscriber base from advertising on high end websites. Simple business model – but there's a right way and a wrong way to do it.

    October 9, 2010 at 1:52 am | Report abuse |
  10. therese

    To say that maybe people in the service industry should "provide better service or find a better job" if they don't make enough to support themselves is terrible, because many times they will do their jobs and go above and beyond on their service and still get ripped off when enough people tip poorly or not at all. And finding a new job isn't the easiest thing in the world... to just quit a job and be without any income rather than take home whatever you can get isn't possible for those people who are living paycheck to paycheck.

    October 10, 2010 at 9:53 am | Report abuse |
  11. Tess

    Clearly some of you people have never worked any kind of retail or service job. Seriously it's hard work. We deal with more rude obnoxious crazy people in an hour than you probably work with in a week. I work retail and I hate the coupons, because even though we're giving you something completely for free people still complain all the time about it. Also, for those of you who thinking tipping is "American only" you should do your research!!! In Europe mostly the tip is already included in your bill! Thats what most other countries do. So it doesnt even matter if the service was good or not. Frankly so many people lack even basic manners and respect for any kind of person in a wait staff or service job. Sure I will never make millions, but I do honest work. I despise when people are so lacking in basic manners. You should always tip, even if the food or service was so/so, because you absolutely never know what that person may be dealing with. If in doubt, be kinder and chances are we'll be so much kinder to you. I will go out of my way and do anything I can to make a kind customer happy because they can be so rare.

    October 10, 2010 at 11:56 pm | Report abuse |
  12. CJ

    Businesses still profit 66% of the time, so maybe Groupon isn't to blame, but the business itself for thinking that it has the funds available to make a Groupon deal work. Other sites have actually branched from Groupon, such as http://www.kegfly.com, which is collective buying for college students, which has been very successful.

    October 18, 2010 at 12:40 pm | Report abuse |
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