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?
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.
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!
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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