I have been using Groupon for a couple of years now. I haven’t expanded to the other local coupon vendors popping up, because frankly – there’s only so much mail I can handle getting delivered to my inbox every day. And they were first. Another example of first-mover advantage. Very rarely have I been inspired by Groupon to purchase a service or product that I wasn’t already considering or a local brand that I didn’t already love. Moral of the story – Groupon’s true value to me as a consumer is in the deal. Unbelievably good deals are my expectation. When I get that deal, I don’t walk away associating that unbelievably good deal with the vendor. I associate it with Groupon. And as a consumer, I have been fairly happy with that.

The promise to local vendors by Groupon is quite different. Their value proposition to local small businesses is in delivering a slew of new customers. And I have seen it work. Too well. With the yoga studio who suddenly has two dozen people who want to sign up for a class that only holds one dozen, for example. Or the nail salon who has a Groupon expiring in one week and can’t fit in any more appointments. Suddenly, what was supposed to be a seemingly easy and promising way to attract new customers is turning off those customers, or worse – preventing them from becoming customers in the first place.

Any small business will tell you what the number one way to grow a business is – referrals! Word of mouth, viral marketing, loyalty programs, whatever marketing buzzword you attach to it, the reality for most small businesses with limited marketing budgets is that they can’t afford a fancy, high-priced expert consultant like myself. They pride themselves on doing a good job, selling a quality product, providing excellent customer service and asking those customers to refer others who would benefit. The companies that do well are the ones that grow and sustain themselves. Otherwise, the smoke and mirrors eventually fade away and the doors eventually close.

Groupon has an interesting business model. Those unbelievably good deals you get as a customer are not such unbelievably good deals for the business. In most cases, HALF of the money you are paying goes directly to Groupon, leaving very little left over for the business owner to truly run their business effectively and profitably. The problem then being – they are not incentivized to provide that quality product or enhanced service to gain your loyalty. And if they aren’t incentivized to do that, it can quickly turn into a customer detracting campaign rather than a customer attracting campaign.

Ever heard of Yelp? It’s another great way for local businesses to get the word out. Encourage customers to review your business. Read your reviews. If people are unhappy with your business for some reason, address it. Correct it. People will love you for it. If you need a visual example of what can happen when a Groupon campaign goes wrong, just check out Sweet Life Nail Bar in Denver, Colorado. (Click on the Rating Details link). Within one month of their Groupon expiring, their rating turned into a marketer’s worst nightmare and plummeted.

Note: I contacted the owner of Sweet Life Nail Bar to make sure she was aware what was happening to her online reputation. While she decided not to honor the expiring and/or expired Groupon certificates for pedicures, she suggested contacting Groupon for resolution. While that did not help in my case, it may help other folks who felt abandoned without recourse. If you successfully achieved resolution with Groupon, I’d love to hear from you.

For local businesses who have integrity and a good product, you are still better off following the golden rules of customer service than losing your shirt running an unprofitable Groupon campaign. If you do use Groupon to grow your business, make sure you have an offer with terms you can live with – without substantial breakage. Honor groupons or offer other promotions to customers who don’t have a chance to use them and you will win their business. Oh – and if you operate in Colorado (Denver, Boulder or Northern Front Range especially) and you have a healthy, local and/or sustainable focus on food – I have a project to help you. Drop me a line.