The Pros And Cons Of Groupon

groupon marketing
Groupon - a viable marketing tool for small businesS?

Although launched in 2008 Groupon has really exploded in the past eighteen months, with cities all over the world covered it seems almost anyone can now sign up to get something for almost nothing. Groupon gets businesses to offer products or services at a severely discounted rate, usually around 60% – 70% off the usual retail value and if enough people sign up in a certain time window ‘the deal is on’ and the vendor then has to honour that agreement to sell as many units at that pre agreed price in a twenty four hour – forty eight hour window. Groupon then takes their commission from each unit sold out of what’s left after the discount. With subscription figures around the 35 million mark Groupon don’t have to do too much hard work to convince businesses to sign up and hand over their cash.

Is this really a good idea?

First off it needs to be established that Groupon is not a method for businesses to make money, no one will ever offer a Groupon deal and make money off the deal alone, in fact you’re going to be very lucky if you don’t end up losing a lot of money – if you’re giving something away for 60% off then you’re giving Groupon a cut of the 40% you’re left with, you can wave good bye to any profit margin.

So if it’s going to cost you so much money why bother?

You bother because of the traffic either online or foot traffic you’re going to get from this deal because if nothing else Groupon can reach more people waiting to buy your products or services with one email send that you could probably ever hope to achieve with one email.

The idea is that the traffic you’re getting either stops to take a look around at the other things you have to offer and/or comes back once they’ve used their voucher.

Is there a right and a wrong way for businesses to use Groupon?

The jury is still out on this one so this is just my opinion both as a Groupon user and a marketer who has spoke to several business owners who have tried it…

Yes there is a right and a wrong way. We’ve already established Groupon is going to lose you a lot of money and it’s only used to attract new customers.  This means whatever you chose to offer needs to have as huge profit margin, if you have a product you’re just going to throw away because it’s not selling and taking up expensive room in your stock room that’s great. It should be pointed out Groupon don’t just flog any old tat, it has to be something that’s going to be wanted and something that’s worth the original full retail price.

You also need to make sure you can honour the quantity you sell, Groupon is big enough to swallow up bad press like it’s a mid morning snack but the chances are you can’t. Groupon should be able to give you an idea of previous volumes they’ve sold in your industry in your area and if you’re even slightly hesitant you can’t deliver that don’t even try.

Just last week GrouponUK had to send out a very apologetic email to everyone who purchased a set of hair straighteners from a London salon – after three months and still no sign of the elusive straighteners for many of the customers the aforementioned spa admitted they were going to struggle to deliver the quantity they’d promised, as a result Groupon would be offering money back.

In this instance the spa themselves also sent a very well worded email also offering a lot of grovelling, promising to give everyone their money back and still offer to deliver the straighteners (although after three months I wouldn’t be holding my breath) and personally if I had been considering spending more money with that spa I’d be very hesitant, they’ve cost themselves a lot of money and they’ve also lost any chance they had of getting repeat custom out those Groupon users.

The moral of this story being you’re betting your reputation and customer service on the fact you can follow through on your promise.

The right way to use Groupon

From a business perspective Groupon works better for service based businesses rather than those offering products. Services will swallow a loss in profit margins much more efficiently than products; businesses like salons can do very well.

When it comes to using Groupon for products try to give the customers the choice, things like x amount of money for y percent off on a set selection of products works better than just offering a set discount of a specific product.