Recently one of our clients considered using Groupon to help boost sales of their innovative bedlinen product. Having reviewed the pros and cons they decided not to proceed. Could Groupon be right for your business?
How does Groupon work?
In a nutshell, a business provides an offer on a product or service (at least 50% off the usual price) which Groupon markets it to its subscriber database. Groupon take 50% of all revenue generated from the deal as commission.
Groupon operates across 48 countries and has 600 million subscribers. Groupon offers can be national but most deals are for major cities and the surrounding areas which allows you to target your deal locally.
Exposure – Groupon can put your product in front of thousands of potential new customers that otherwise may not have heard of you with no upfront advertising costs.
Gain new customers – the offer may incentivise new customers to buy from you for the first time and they might become repeat customers.
Boost sales – Groupon can help increase sales during quiet periods, for example hotel rooms in winter.
Enhanced sales – the customer may take up your Groupon offer and make additional purchases off the back off it. For example if the offer is a beauty treatment the customer may purchase beauty products from you after the treatment.
Track success – it is possible to track exactly how many people have seen your advert, how many times it has been forwarded (via e-mail, RSS, Twitter and Facebook) and, in real-time, how many people have bought.
Fulfilment – more customers than expected could buy your offer, making fulfillment a logistical nightmare and also potentially leading to a decline in your normal customer service.
Brand perception – businesses that regularly offer discounts gain a reputation for such and customers may not buy at the normal price.
Deal chasers – there is an army of customers who are discount shoppers and only buy when there is an offer. As soon as your offer has ended they will move on to the next discounted seller.
Profit margins – once you have taken into account the 50% discount and the 50% commission payable to Groupon you could be selling at a loss. This needs to be calculated and considered against the overall objective.
Damage existing customer relationships – your existing regular customers may wonder why they are paying full price when they are loyal, repeat customers. Also an influx of custom could affect your levels of customer service and further upset existing customers.
Groupon can work successfully as a marketing tool provided it meets your overall marketing objective and you are aware of the potential pitfalls.
We know of a local car garage that used Groupon to offer a discounted car service. They ran the Groupon offer at a loss but more than made up for this with the repair work that came off the back of the servicing. In addition to the extra work the offer generated they now have an expanded customer base of happy customers who are likely to return in the future and can also be marketed to.
If you are thinking of using Groupon as a marketing tool make sure you think it through carefully and calculate the potential costs.