Offering a Groupon for a small business could be a great way to market it … or it could cost you time, money and grief.
If you are considering Groupon as a marketing expense, and not as a money generating sales vehicle, you are off to the right start. Groupon buyers are looking for a deal. Many businesses offer deals of 50%, or more, off their regular prices. But Groupon takes 50% of every sale. So if you offer a 50% discount, you only make 25% of the typical revenue off of every sale. If 25% doesn’t cover your operational costs, you will lose money for every Groupon that gets sold. Most businesses do not have a 75% margin.
But you get wide exposure. So is it worth it? Maybe …
Some Groupon buyers will love what you have to offer and stay as repeat customers, give you great reviews, and tell their friends about how great you are. This is the best outcome because you quickly converted someone from the pre-awareness stage to the loyal customer stage.
Six years ago I bought two Groupons for gymnastics lessons at a local club. My kids had been wanting to try gymnastics. We have plenty of local gymnastics clubs in our area, but we chose this club because it was close and offered the Groupon. We have now spent thousands of dollars at this club. They definitely made their money back off of us.
But not every Groupon I bought has yielded positive results for the business. I suspect that many of the retailers did not make their money back. We redeemed our discount but didn’t return to become full price paying patrons.
Why didn’t we return?
Reasons for not returning fell into these basic categories.
1) I would never pay full price for the activity/service.
2) It was such a great deal I was willing to drive across town for it. But it is too far away for repeat business.
3) The experience wasn’t good enough to warrant repeat visits at full price.
If I didn’t return because of price or geography I was not the target market for that business. There is a reason you see advertisements for McDonald’s near the freeway, but not in Vogue or GQ magazines. You want to spread awareness to the right demographic group. Depending on how they structured their discount and the operating costs of those businesses, it is likely that my limited interaction actually cost those businesses money.
Do you want a bunch of customers paying discount prices if they can’t or won’t continue doing business with you at full price? If you aren’t breaking even operationally and you spread awareness to the wrong group of people, what have you accomplished? A lot of headaches and potentially worse.
If you cut operational costs to make the Groupon worthwhile, you are in danger of not providing a fabulous service. This is the most dangerous situation for your center. Companies that lost my future business because I had a mediocre experience had the worst outcome. I warned my friends to steer clear of that establishment. Remember, even Groupon purchasers can leave negative reviews.
How to Overcome these Pitfalls
1) Structure the discount so that you are attracting your target audience. If the discount is too deep you will likely attract people who aren’t willing, or able, to become repeat customers. You may also attract people who are willing to drive 45 minutes to your business to save a few dollars. When the discount ends they will find a solution that is closer.
2) Limit how many Groupons you sell. If you don’t have the staff or the space for an influx of 650 new customers in the next 3 months, don’t sell 650 Groupons. It will stress out you and your staff. Plus, you run the risk of lowering your standards.
3) Give your Groupon customers the same level of service you give other customers. Turn them into people who will rave about your business.
Another Groupon Dilemma
Let’s say you have decided to try marketing with Groupon. How often should you offer a Groupon?
If you manage to get a great return on investment you might be tempted to run Groupon promotions frequently. Be careful with that too. You run the risk of devaluing your service If Groupons are always available.
You also want to make sure that you specify “for new customers only.” We buy Groupons from a few establishments on a regular basis. They run Groupon promotions so often I never pay full price. Hopefully the business is making some money off of my purchase.
You may want to consider offering a Groupon for a season or time that is slow. There is a stable near us that offers a Groupon for horseback riding lessons before 3pm. Most schools don’t get out until 3 pm, so the stable is trying to attract homeschooling children.
A Final Thought
Before you use Groupon as a marketing tool, make sure your website is up to snuff. You will want some great content for visitors to poke around on to help them make a decision. Don’t have time to write content? You can always use the services of Cuttlefish Copywriting.
Have you already tried Groupon? Did it work for you? Leave a comment and share your experiences.