The Effectiveness of Groupon Promotions for Merchants:

Abstract: The effectiveness of Groupon promotions is a function of their long-term profit and alternative cost. In an email survey of Swedish merchants, 63 % reported that their campaign was profitable and 27 % that they made a loss. The average cost of running a Groupon promotion is roughly estimated to be 0.77v per coupon, where v is the value or list price. Effectiveness in bringing in new customers who repurchase at full price is found to be an important driver of profitability.A simple model of the expected profit from running a Groupon promotion is developed and applied in a detailed case study. The results suggest that businesses may not understand the profitability of their promotions.