Groupon, launched in November 2008 in Chicago, is a highly successful online marketing venue for businesses looking to gain more customers and for consumers looking for great deals on things they already buy. Here’s how it works: Businesses wanting to reach more customers sign up for a “daily deal” promotion where they offer some product or service at half off the normal costs. Groupon then sends that offer out to a list of users who have signed up to receive these daily deals. But here’s the “catch” (or the brilliance depending on how you look at it): in order for the deal to be “on,” a certain number of people must buy the deal – otherwise it’s off.

What this does is fuel people who WANT the deal to pass it on to friends and family to try and pump up the offer so they can get in on it. In doing so, Groupon naturally gets more users to sign up for their daily deal and keeps a hefty percentage of the sale. Also, the deal is only good for that day, building in an automatic urgency to buy. Clearly this is a good deal for consumers who get to buy products and services at deep discounts – but is it a good deal for the businesses that are using this as an advertising media?

Some say yes because it allows a new startup business to gain actual buyers to their store or web site at a break even or loss. And if you are providing a service that people really like, chances are they’ll come back and tell their friends. However, some say it only attracts price shoppers who have zero loyalty; and no business wants that type of customer, especially when you have to deliver the products and services at a break even or loss. So how do you find out whether or not it will work for you? The best idea is to run a test and track the results. Obviously if you offer a great service that begs repeat business, it makes sense to advertise using Groupon because the upfront loss will be more than made up from in long-term repeat business and referrals. But if you have a problem with customer retention and loyalty, Groupon might not be the best place for you to advertise. To learn more on how to become a featured business on Groupon, visit www.grouponworks.com