Deal-breaker: The US companies turning their backs on coupon sites

The Life: Many businesses in the United States are avoiding sites such as Groupon and Livingsocial, with some saying they lose money by offering 'daily deal' promotions.

Groupon, the largest daily deal website, reported disappointing third-quarter revenue this month. Scott Olson / Getty Images / AFP
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Josh Neblett, the co-founder and chief executive of GreenCupboards, an online retailer, is busy planning how he will get the word out about his eco-friendly products during the holidays, including email campaigns, Facebook advertisements and joint promotions with suppliers.

One item not on his list: the daily deal coupons popular last year.

"We did three different LivingSocial deals last fall and at the end of the day, it did not pencil out enough for us to continue," says Mr Neblett, who started his 55-employee, US$15 million (Dh55m) company in Washington in 2008.

"The average net loss per order was significant and the average customer we gain through our own marketing initiatives repeats business with us at a significantly higher rate."

He is one of a swell of small business owners souring on daily deals.

A survey conducted last month by Manta, a small business listing service, of 1,087 of its members showed that 82 per cent do not intend to run daily deal promotions this year.

Only 3 per cent said such campaigns have garnered them repeat business; 3 per cent said they lost money on daily deal coupons.

Groupon, the largest daily deal website, reported disappointing third-quarter revenue this month, sending its stock price to a record low. LivingSocial also reported a third-quarter loss.

Groupon has featured more than 250,000 merchants in its coupon deals worldwide and half have signed on again over the past two quarters, the Chicago company says, pointing to a survey it commissioned in March.

"Thousands of merchants across the globe will rely on Groupon this holiday season to serve as their local marketing partner during a crucial time of year for their business," Julie Mossler, a spokeswoman for Groupon, wrote in an email.

"Our merchant services team will be working hand-in-hand with these business owners to make sure they're ready for their Groupon promotion and prepared to make the most of the increased exposure they'll enjoy among new and existing customers."

The daily deal model, which offers a deeply discounted, one-time coupon with revenue split between the merchant and the daily deal site, seems to be working for Lorien Clemens, a marketing manager at Pet Hub, an online start-up also based in Washington.

"We are partnering with several daily deal sites this holiday season and they're quite beneficial for us," Ms Clemens says.

"Dollar for dollar, we spend less to acquire a customer through Groupon than we do on any other means, including Facebook ads, and it helps us establish long-term relationships."

Founded in 2010, the five-employee company sells dog tags that link to an online database containing information about the pet's owner, plus veterinarian and medical conditions.

Many new customers who signed up with Pet Hub through Groupon and other coupon promotions have found lost pets thanks to the tags, Ms Clemens says.

Because Pet Hub is primarily a service company, it can afford to break even or take a loss on coupon discounts in the hope that first-time users will stick around.

But for a product-based business such as TravelKiddy, which sells travel kits and toys for children, results were not good.

Jennifer Untermeyer started the Colorado-based business in 2009 and carries 800 items.

She brought in $78,000 in revenue last year, but the five daily deals she ran with various promotional companies wiped out her anticipated profit margin.

"We have a 40 per cent profit built into our pricing, but we lost a significant amount of money on each deal," Ms Untermeyer says.

"We were sort of sucked in with the great sales pitch" that the coupon companies offered.

"Customers who redeemed the coupons did not come back and more than half bought just the coupon amount - nothing else."

Some wanted her to honour their coupons after they had expired and berated her on the telephone when she refused. "They asked when I'd offer one again. I told them never."

Daily deals burned a vocal minority of small business customers of Zoovy, a San Diego e-commerce platform aimed at small to mid-sized businesses, says Brian Horakh, the company's founder.

"We're seeing something of a negative backlash now," he says.

Other customers have found ways to incorporate deal coupons into marketing plans: they use them sparingly to boost website traffic, but negotiate deals allowing them to at least break even on each sale.

Mr Horakh faults the coupon companies for not coming up with a tool that helps small businesses convert one-time coupon users into repeat customers.

"There have been a couple of attempts, but no one has come up with that golden goose," he says.