Does Groupon Promotion Work?

June 23, 2011

I got a haircut yesterday.  The woman who cuts my hair is one of my sources for how the economy is improving and working.  Though it is a pretty local data point, it has proven to be useful.  On this visit, she gave me some “on the ground” merchant insights into a Groupon promotion.

As she started cutting my hair, I asked her my usual question, “How is business?”  She said that they used “The Groupon” right after my last visit.  So I asked her how it went.

She said that it created a pretty amazing spike in demand right after the offering.  She is one of the more optimistic people in the shop, so she took a lot of the business generated.  She said that she saw approximately 45 people in the last month due to the Groupon.

I asked her about the people that she saw.  She said that some of them were coupon hounds who talked about their previous haircuts due to price discounts and that some of them looked like it had been a long time since they got a haircut, but many of them were more like her standard customers.

She said that she was really, really busy for a couple of weeks.  I asked her if it cut into her regular business or if she was working in what would have been downtime.  She said that she saw all her regular customers and that the new customers from Groupon were all incremental.

I asked her about the economics of the new customers.  She said that she gets about $45 for cutting a woman’s hair normally (less for men) and that she got about $7 per haircut for the Groupon customers.  She said that she got tips at the more normal rate and some people gave her even better tips because they had a discounted haircut.  She was really happy to describe how Groupon gives suggestions to the customers on being an appropriate customer and giving a tip based on the full price of the haircut which she attributed to the reasonable tips that she was getting.

I also asked her about repeat customers.  She said that 7 of the 45 people had already been back for another haircut at a full price and that she expected more given that it was such a short period of time.  She also said that the Groupon does not expire until October, so she expected more new customers in the coming months.

Overall, she seemed really happy with the experience.  She said that she thought the shop may have a better benefit than her individually, but she seemed happy with the new customers that came in and she clearly had an economic benefit from it.

I asked her if they are going to do it again.  She said that she thought that she would and that they are considering another service for their next promotion.  I thought that this was a pretty interesting point.  They were happy with the result but were still going to try another service.  I wasn’t sure why, although I suspect that they want to test and see how another service works out and perhaps each service has some unique, new people that would bring in additional haircuts.  Or, perhaps another service will bring in more repeat customers.

With all the chatter questioning if Groupon really works, I think that this is an interesting data point.  For this merchant, it clearly works!  Of course, since this merchant is trying others, perhaps the real question is around Groupon’s uniqueness and defensible competitive advantage in the minds of the merchant?

Founder & Partner

As the founder of OpenView, Scott focuses on distinctive business models and products that uniquely address a meaningful market pain point. This includes a broad interest in application and infrastructure companies, and businesses that are addressing the next generation of technology, including SaaS, cloud computing, mobile platforms, storage, networking, IT tools, and development tools.