Groupon has been hailed as the new miracle advertising tool. It has also been accused of being a ruthless corporate giant, preying on the ignorance of small businesses.
Since its inception in November 2008, Groupon (think social media meets coupons) has transformed the way local businesses promote their products and services.
How does it work?
First, you agree to become a featured business on their network. You then reduce your product or service price by 50% or more. Groupon promotes the deal and gets new customers through your doors. For every deal, Groupon gets between 30% and 60% of your drastically reduced price.
What? You only get half of your discount price? That's right. But it's worth it when 800 new customers come storming in for your product. Or is it?
There are dozens of businesses that have been all but ruined from their Groupon deals. Like any decision in business, it's easy to get swept away by trends and promises of future earnings. Now here's a little secret – Groupon is not for everyone.
Small and large businesses alike have felt the keen sting of a Groupon feature gone wrong. It's up to you, as the business owner, to make the right choices for your business.
This means carefully weighing the pros and cons before leaping headfirst into what could be a raging failure.
You need to decide whether Groupon makes sense for your business. Then you need to learn how to use it properly.
Seeing Groupon Through a Marketing Jam-Jar
If giving Groupon 50% of your already discounted price doesn't raise some red flags, then you need to start seeing it through the eyes of a marketer. Marketers don't like giving money away.
They calculate the repercussions of their actions long before they commit to something new.
Your Groupon deal could change your business. It could dismantle your loyal customer base. It could lead to the degeneration of your brand identity.
Weighing the negatives means actively looking for them. Unfortunately for Jesse, owner of Posies Bakery and Café, she didn't see it coming. Her Groupons made her lose money to the point where she could hardly afford her expenses.
For 3 months, Jesse watched as Groupons rolled in – eating up all of her profits. At the time, her only intention was to get more customers through the door.
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The moral of the story? Ask yourself these tough questions first.
- Are you willing to replace your customer base with one-time-only coupon holders for the entire time they're valid?
- Are you willing to trade in loyal customers for customers who are loyal to Groupon, and will probably hunt for the next deal once yours is over?
- Are you willing to sacrifice some brand loyalty for mass promotion?
If all you're after is exposure, then Groupon is a viable option. If you're expecting a massive boost in profits – first, tally up the most successful outcome of your deal with Groupon. The figures may shock you!
Tip #1: Limit the length of your Groupon promotion. Take note of what the Groupon sales rep has to say, and haggle for the best deal possible.
Addicted to Groupon Success
You've decided it's worth the risk – and your Groupons were a huge success! This is great as long as you're running deals, but what happens when they stop? If you use Groupon too many times, you might lose a lot of money.
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Essentially, you're creating an army of customers who only buy from you because you're cheap. Your customer base will dissipate as soon as you give up on the coupon system. Plus your brand perception will change. The discounted product or service will not sell as well at its normal price.
Don't get stuck in the Groupon addiction cycle. If your Groupons are that successful, your business will expand in a few short months. You might not be able to sustain the sales boom without more and more coupon discounts. As the deals fall away, you could be stuck in a situation where you have even less business than before.
Tip #2: Use Groupon to get people through the door. Entice them with some specials of your own. Focus on the upsell, on turning these one-off customers into repeat business.
Groupon in Context
Many businesses are still trying to recover from the economic recession. They cut their prices down to barely earn a profit from their sales. Competition based on price is an unhealthy way to grow your business. Yes, there are many advantages of an excellent Groupon promotion, but it has no real long-term returns.
The problem is that struggling small businesses see Groupon as their marketing savior. They don't take into account the fact that they will have to work harder for less money, or order more stock to sell for next to nothing.
Groupon says that many people don't claim their purchased coupon, which leaves more profit for the business owner. Be aware that the larger your product or service, the fewer people are likely to ‘forget' to collect their Groupon.
J. Haynes of Hat Trick Associates says, “The truth is, when you charge some (current, satisfied, loyal) customers full price… and other (brand-new) customers half off, you make some people happy and others unhappy. And you are making the wrong category of customer happy!”
Leveraging Groupon for the Right Reasons
Groupon is not advertising. An advert works to sell your product at a price that will be the most beneficial for your business. Groupon basically sells your promotion by showing thousands of people an incredible bargain associated with your brand. It gets people into your shop, but it doesn't keep them there.
The best feature of a Groupon experience is the exposure that you get. It will boost your website, blog and social media traffic, which will lead to more signups, likes and follows. This is what you're paying for when you're running a Groupon.
What's the key to making it successful? Do the numbers. Calculate the risks involved. Prepare for more sales in your shop. Work on upselling other products and services to take advantage of the boost in business.
Don't rely completely on your Groupon deal. You might find that a well-orchestrated pay-per-click campaign renders the same results, at far greater financial reward for your business.
Groupon is part of the geolocation sales craze, so it can be a positive marketing tool. But take their promises with a pinch of salt. Maximize the opportunity and prep for the profit crunch.
Remember that Groupon will boost your business temporarily, but not necessarily your profits or your customer base!
Are you for or against Groupon? What is it about their service that you like/dislike? Join the thousands of people helping business owners to make the right decision with their Groupon promos by leaving us a comment in the box below!
All photos from iStockPhoto.
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