Groupon: Winner or Goat?

The whole world is abuzz about Groupon.  And who doesn't love $10 worth of Cold Stone Creamery ice cream for $5?  But is Groupon right for your business?

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Groupon and other social-coupon sites (like LivingSocial and SocialBuy) all work the same way — a specified number of people have to pre-purchase the coupon for the deal to be activated. In theory, that's how everyone wins.  Groupon makes a prescribed amount, the buyers get a super deal and the retailer gets a guaranteed influx of cash and in theory, new customers.

But it's not always a bed of roses.  You've probably heard the nightmare of a story from Posie's Cafe and their Groupon experience. Many businesses are declaring themselves "not interested" and as Chicago wine and cheese shop owner Greg O'Neil states — why replace full margin business with lower margin business?"

As with most things, there isn't a one size fits all answer.  My Age of Conversation co-author and Texas based marketing guy Jay Ehret believes social coupons aren't smart for most businesses.  On the flip side, Duct Tape Marketer John Jantsch gives it a thumbs up.

There are plenty of studies and academic opinions on the topic too. Check out what Harvard Business School and Rice University had to say.

But…is it right for you?  Here are the big pros and cons, as I see them. 

Pro:

Big advertising boost.  Groupon subscribers number in the tens of thousands or more in most cities.  This is a very efficient way to generate a significant word of mouth buzz, especially if you get creative in your offer.

Exposure to many new customers. It stands to reason that you're going to see a lot of new people coming through the door.  Impress them and hopefully they'll come back again and pay full price.

A way to test a new product or service.  Want to know if the market is interested in something new?  If the Groupon coupon tips — you might well have a winner!

 

Con:

Does the math work?  Keep in mind that Groupon takes a pretty good sized cut.  Half the rate charged plus 2.5% interest per transaction. (Here's a Groupon ROI calculator you can use).  So depending on your cost of goods and how many people actually redeem the coupon, you could lose your shirt like Posie's Cafe.

What does it do to your customer/vendor/employee experience?  Can your business handle a huge influx of buyers?  How will the increased traffic impact your loyal customers?  Your vendors?  Your employees?  Be sure you take all of that into account before you sign up.

What does it say about your brand?  Do you want to be seen as a deep discounter?  Does offering a 50% off price say something about your quality, margin or pricing strategy?  How will your regulars feel about the fact that they've been paying full price all this time?  

Lots of opinions out there but really, it's something you need to examine for your specific business.  Use the ROI calculator, weigh the pros and cons… and make the call.   

 

 

 The cartoon is courtesy of Tom Fishburne, the Marketoonist.

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15 comments on “Groupon: Winner or Goat?

  1. Karin H. says:

    Hi Drew

    Just read the Posie’s Cafe story – ouch! Had never heard of Groupon before (not in the UK it seems) but I can see how easily a business would be temped to use this as a sure-fire marketing exercise to get as many as customers as possible in a short time. But at what expense???

    To be honest, I think it would only work for most businesses for your #3: test a new product rather quickly to a wide public.

    Otherwise I would stay well and far away from it.

    (Love the cartoon!)

    Karin H (Keep It Simple Sweetheart, specially in business)

  2. Sarah says:

    Thanks for this Drew.

    I used “Jump On It” (same sort of thing) here in Australia. They wanted half the price, and I nearly choked when I heard them say that. Told them sorry, can’t do it at that price, I won’t stay solvent. They eventally came back with a better deal. I also reduced the number of coupons to a managable amount. Took a few rounds though.

    My main reason for using them was that, as a new photographer in the business I really needed some new subjects to expand my portfolio, and keep things ticking over. I was doing sessions for free with my friends anyway, why not paying customers.

    I’ll only ever use a ‘Daily Deals’ site again in the future to test a new product.

    Thanks for you posts Drew, I appreciate them all the way over here in Western Australia.

  3. Robin says:

    I agree it isn’t for everyone but as a consumer and avid-Groupon Groupie … it has introduced me to businesses that I might not have tried otherwise. It brought me into their establishment and I have been amazed as to what’s in my backyard that I never thought of going to. I’ll be back!

  4. WOW. this is the third place I’ve seen Tom Fishburne’s cartoon on Groupon (not including his own site!)…

    I’m wondering if this is the red-flag that marketers needed to see before the craze started?

    Detrimental branding?
    Bad Targeting?
    commodity value?

    I’m interested to see where this goes for those that adopted the tactic as well as how they react to a little backlash…

    Keep Cooking
    Andrew B. Clark
    The Brand Chef

  5. Thank you for this informative article from an obvious expert.

    I see Groupon all over the place and haven’t bitten at all to one single click. Perhaps that it is because of that belief that “if it sounds too good to be true it usually is”.

    All the reasons and plus or minus on whether you should consider Groupon are easily spelt out!

    Jeannette
    http://optioneerjm.blogspot.com/

  6. Good points, but you are asking the wrong question.

    Choosing a marketing method with out a strategy will get you in trouble. Anyone selling you something that is still in business after a few cycles is offering something of value.

    The guy in the cartoon is an idiot. Buying a Groupon is not a marketing plan.

    On the other hand, if you know the lifetime value of a customer, you can loose money on the first sale and still build a very profitable business.

    Talk of “which media is best?” distracts from the real problem most businesses face.. they don’t know the LTV on their customers.

  7. Donna Goggin says:

    I joined Groupon a few months ago and have yet to see a deal that I feel is worth my money or time to do.

    I know that the businesses don’t get as much from Groupon as the company but for me personally if I were to get a coupon for something that was new that I wanted to try, if I really liked what I got, I would pay full price for it later. Take Oberweis ice cream; it is terribly expensive yet if I really want good ice cream, I will pay the price for what I want.
    I have found over the years that anything of quality is worth the price you pay for it. Cheaper isn’t always better.

  8. Hi Drew. It’s a nice analisys from social-cupon sites based business. I agree when you said to take care with loyal customers opinion. The business owner must think in another strategy for rewarding their’s loyalty.
    I just signed in into RSS feed to keep me updated.

  9. Warren,

    You will get no argument on that point from me. I preach “strategy first” each and every day. Hence the pros and cons. If Groupon (or any couponing tool) fits your strategy — you still need to find the delivery partner that makes sense.

    And for some businesses, Groupon doesn’t — even though at first blush, it looks remarkable. Flip side…for some, it is remarkable!

    Which of course gets us right back to your point — how does it fit into your bigger strategy?

    Drew

  10. Donna,

    I’m curious — do you now perceive the companies that offer a deal through Groupon in a different light?

    Drew

  11. Flavio —

    Glad to have you jump into the comments. Hope you’ll do so again soon!

    Drew

  12. Nigel Burke says:

    Who wants one hit customers? but as you pointed out, it is suitable to some businesses but not for others. Now I just wished that business owners would realize this before jumping in. Of course a Groupon sales rep would give them a sweet talk about how good it would be for their business.

    1. Nigel,

      I think Groupon has a pretty compelling sales story. They do drive a lot of traffic into their clients’ locations.

      But…if the deal you put together is too generous or creates too much demand, it can truly be a case of too much of a good thing.

      It’s definitely a case of buyer beware. Business owners need to do their homework.

      Drew

  13. Nigel Burke says:

    Hi Drew,

    Business owners definitely need to do their homework. It’s too easy for them to get caught up in the hype of Groupon.

    I find it amazing how much Groupon gets with their cut of the deal.

    Nigel

    1. Nigel,

      I think for many business owners, the numbers are intoxicating. They just need to decide if the hangover is worth the party!

      Drew

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