Groupon: The Pro & Con

There's been a lot of talk lately about Groupon, the daily deal that offers huge discounts on local consumer products and services.

(A "groupon" is a prepaid coupon that is purchased up front and redeemed within a set time period, say six to 12 months.)

The success stories are amazing, touting hundreds of Groupons sold in a single day. But recently I read in a couple of blog posts and articles that there are some detractors who say that the 50/50 split of the cost of the Groupon leaves the vendor little if any profit, and may even bring the vendor to the brink of financial disaster, so I decided to weigh in on the subject.

As a marketing coach, I like the idea of essentially buying new customers, but caution my clients that there are pitfalls of using Groupon or any other deep discount strategy. Here's my list of the best and worst of Groupon:

Pro Groupon:

• Successful Groupons give the business a cash infusion.
• Groupon offers instant access and visibility to a huge pool of new customers.
• There are no up-front costs with Groupon.
• Customers typically purchase more than face value of gift certificates and coupons at point of sale, thus boosting profitability [this is based on my experience as a marketer, not specifically with Groupon].
• Drastically reduced pricing draws in those who might not have tried the product or service without the financial incentive.
• Redemption process presents opportunity to add customers to develop the relationship, such as offer additional coupons and/or add to a mailing list.

Against Groupon:

• Current customers may buy, reducing profitability on certain transactions.
• Low to no margin on Groupon sales.
• Huge sales may put business in temporary financial bind if the pricing is not properly structured.
• Staff training and compliance required.

From my personal experience, the case against Groupon isn't about the realm of profitablility (because hey, I am trusting the business owner to make sound financial decisions), but in training. Yes, that's right: TRAINING.

My experience redeeming Groupons at two of the three restaurants I tried with Groupons was soured by the attitude of the staff, with a server churlishly reminding me upon presentation of the Groupon that the tip was not included and should be based on the full value of the ticket at one restaurant (author's note: I usually overtip, and of course she didn't know that but to assume I was going to be a bad tipper because of a Groupon was stupid), and an overheard conversation between servers that my table wasn't a priority because it was "just a Groupon table so they can wait" at the second.

The third restaurant did it right, though, receiving the Groupon with thanks, and asking if this was my first visit. When I said yes, the server went out of her way to be helpful because, as she told us, she wanted us to have a great meal and to come back again.

That's the point of Groupon: To get NEW customers to try your product or service with little investment so that they can decide whether or not to return.

If a business is prepared to receive new customers, and determined to provide such a good experience that they come back again and even bring their friends (which is where the profitability is), the Groupon is a good choice.

Groupon becomes a great choice when there is a process or mechanism for capturing the contact information of all these new customers to invite them back again and again, but most businesses won't go that extra mile. Too bad, because repeat business is where the profits are.

But if Groupon users are treated shabbily, as poor relations who are suffered grudgingly, then the strategy won't work.

Overall, I rate Groupon as a strong marketing strategy, best when the financial aspect makes sense, and with expectations and action plans in place before the Groupon drops.

Groupon: The Pro & Con © 2010 Veronika Noize. All rights reserved.

About the author
Veronika (Ronnie) Noize, the Marketing Coach, is the author of “How to Create a Killer Elevator Speech” and featured author in Insight Publication’s “Marketing Strategies that Really Work.” A dynamic speaker and unconditionally supportive coach, Ronnie helps small businesses attract more clients. Ronnie's web site is a comprehensive resource with free articles and valuable marketing tools for small office/home office business professionals. Visit her web site at www.SohoMarketingGuru.com, or call her at 360-882-1298.

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