The Groupon Effect – Part 1

bitterAs a consumer, I like the coupon/discount sites. Trust me, I am super-thrifty… (okay, a tight-wad). You The Groupon Effectneed to think about this before you decide to move forward with any kind of mass “deal site”. Who are you really trying to reach & what exactly are you trying to accomplish??

You must realize that by putting an offer on Groupon (or any other mass coupon/discount site) you are in effect setting a new market value for that product or service. Truly, from this point on, no one is EVER going to pay more than that price. And let’s work out the math. You offer an art class. You normally charge $150 for a 6 week session. But things are slow so you’re going to mass-discount that same class to $75. One big note is that Groupon (and most of the other sites) take anywhere from 40-50% of the price you’re offering – so you’re really only going to make $37.50 for the same 6 weeks of work. (And, by the way, most of those sites don’t pay immediately – they usually pay once a month or some even once a quarter!) You absolutely need to consider that final number and make sure that it covers your supplies and hard costs! There have been businesses who have closed due to the overwhelming “success” on Groupon. Finally, you must also think about the fact that your time is not infinite…so for every discounted person sitting at the table, with a better strategy, you could be filling that position with someone paying more. And finally – be careful thinking that by bringing in an influx of coupon shoppers that your staff will be able to give them an experience worthy of paying more the next time around. Unless you’re both discounting your services AND paying more for extra staff to deliver beyond expectations – this is probably not going to be the case!

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If you’re dead-set on offering a discount, with a targeted marketing effort you can still promote the 50% off but you get to keep the full $75.00! For example, make your own graphic coupon and pay to boost it on Facebook (or other social media sites) for any amount you choose to spend. Or even better, email it out to your own email list (which is FREE – or close to it) and ask that people share it with their friends.  This allows you to stay in control of your discounts while still offering incentives to new customers.  Plus, you have more control over WHO is buying. Just realize that chronic deal-buyers may not ever want to pay full-price, but at least you will be getting traffic in your doors. You may want to consider the hidden cost of offering discounts to new customers rather than current, loyal shoppers. (You don’t want someone who referred a friend to have had paid MORE for the same item!) Think through the whole picture before throwing out giant percentage off (or dollar off) discounts into the market. Here are a couple of alternative options:

      1. Offer BOGO to double your customers while still establishing your actual rate.
      2. Give discounts for returning customers instead of new ones.  Use loyalty programs instead of cheapening the value of your services.

 

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