This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

2 Tough Questions Before Going Groupon

NEW YORK ( MainStreet) -- The value of Groupon as a business may be tough to call. But the value of Groupon to a business? Well friends, that's tough in a whole different way.

With the Groupon IPO en route to early November, businesses should face the real issues the Chicago-based social marketing company poses. After all, who in the game really cares if the firm over- or understates its deal flow or what Google's (GOOG) response will be?

With a Groupon IPO en route to early November, businesses should face some issues posed by the Chicago-based social marketing company.

What really matters to businesses is the business case for Groupon. And after years of not only watching, but attempting to use such Web-based marketing ploys, I find the business logic of operations such as Groupon, LivingSocial and Google Offers looks less logical every second.

Here are the tough questions you need honest answers to if you're going to ensure your first steps into social sales will not be your last:

Are you really ready for your worst customers to be your first customers? For all of Groupon's hip factor, it features nothing new in the annals of retailing. Groupon is merely a so-called jobber. That is, it vacuums up unwanted capacity -- whether it's hard inventory or services -- and offers it at steep discount. Groupon's twist is that it uses these unused goods or services as a way of getting new customers, and therein lies the rub: Groupon shouts far and wide that you are taking way less than you normally do to customers you may -- or may not -- want.

Sure, Groupon is a sweet way to get new faces in the door. But you better be darn good at figuring out which of those faces you want as customers; how to get those new clients to pay more the next time they show up; and how to politely escort those you don't want to do business with to the door. Maybe you're better at this than I am, but I found each of these to be some of the hardest business problems I have ever faced. And combined? Heck, they flat out kicked my rump.

Are you really ready to handle all the new work? As a veteran of trying to harness the power of the Web to sell discounted products, I can assure you that meeting the needs of my deeply discounted clients took just as much effort as meeting the needs of those who paid full freight. And after almost 18 months of trying, I almost never converted these Web-acquired discount customers into full-paying clients. For me, as marvelous as it was to have people I didn't know hire me based on my Web discounting efforts, the work I did for them slowly but surely bled my business to death.

If you are one of the few businesses that can make the nutty Internet pay, then by all means, shout your message loud -- but go with as many of these daily deal operations as possible. Considering what you are risking with social sales sites, it make sense to put up your discount on as many of these services as possible, especially since while Groupon may be hold the pole position in cool right now, it isn't really tangibly different than, say, LivingSocial.

Bottom line: Does Groupon offer intriguing ways to turn your unwanted products and service into customers? Of course it does. You just better be sure you can find, keep and service your new good customers -- and manage the obligations your new bad ones create.

Maybe you can handle the risk of services such as Groupon better than I did. But my business has never been better now that I don't bother.

>To submit a news tip, email: tips@thestreet.com.

RELATED STORIES:







Follow TheStreet on Twitter and become a fan on Facebook.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7870 -13.6380 -0.30%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs