Are Groupon-like deals worth it?

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That’s a question a lot of businesses are asking.

Do one-day daily deals from Groupon, Living Social and the myriad of copycat group buying sites deliver new repeat customers? Do they add incremental profit to the bottom line? Do they allow you to generate income from unused capacity?

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Or are they money-losing propositions that create ill will among regular customers and attract only opportunists who’ll never show up again?

Chances are, the answer you get probably depends on who you talk to.

The major group buying sites have only been around since the fall of 2008. And while they currently boast of heavy participation (Groupon alone claims 55 million North American subscribers, of which at least 16 million have purchased at least one Groupon), we really haven’t been able to ascertain how effective Groupons are as a marketing tool.

Now, however, a few pertinent studies have been released that, while not conclusive, at least give us some hints about how customers and businesses view Groupon-like deals.

A survey conducted by Utpal M. Dholakia at Rice University revealed that new customers made up more than 77% of deal buyers for the sites studied. All spent over the deal value and, on average, about 20% became repeat customers. And a ForeSee Results study in June showed that 62% of deal purchasers are either non-customers, lapsed customers or infrequent customers, which bolsters the position that Groupons don’t just cannibalize full-price customers.

In perhaps the most interesting study, conducted by ConsumerSearch.com and the About Group, 67% of daily deal consumers claimed to have gone back to businesses where they had previously used a daily deal. In this survey, 48% of daily deal buyers were new customers, and in the case of restaurants, 83% ended up recommending that restaurant to family or friends.

I’m sure more comprehensive research will be forthcoming shortly, and what it will show is anyone’s guess. It’s safe to say, however, that at least for some businesses, the tactic of offering a Groupon or group-buying discount could pay off. So should you take the leap?

Before you do, I’d advise you to utilize some best practices. The standard Groupon deal is half off or more the everyday price. Of the other 50%, it’s split between the issuer and Groupon. So in general, Groupons seem to work for products that have huge margins, minimal incremental costs or when inventory is not an issue. And ideally, you’ll be offering a product or service that people will have use for over and over. Offering 50% off a yoga class makes sense. Offering 50% off auto body work might not.

If you’re new to Groupon, consider limiting the number of Groupons you’ll sell. Determine what the minimum is that Groupon will issue, and start there. If you see it’s a success, then you can always sign up for another one.

Another thing you could do is be creative in your offerings. Instead of just a straight “50% off” Groupon, consider putting together a special package, or a his-and-her special.

Also, consider how you’ll handle regular customers who now pay full price. One strategy could be to send an email to your very best customers, and offer them the same deal, without going through Groupon (that way you’ll be able to pocket the 25% that would go to them). Even if they opt not to participate, they will appreciate the thought, and will feel somewhat special.

Above all, recognize that Groupons are a way for people to try you out. Front line personnel can fall into the trap of viewing Grouponers as transients, so be sure to re-enforce with them that by creating an amazing experience for these trial customers, you’re setting yourself up to grow a new wave of repeat customers, loyal customers and advocates.

We’d love to hear your experiences of using Groupon, either as an issuer or as a redeemer. Let us know your opinion in the comments.

1 COMMENT

  1. Wonderful Idea and great post. Thanks for sharing your knowledge with us. The major group buying sites have only been around since the fall of 2008. And while they currently boast of heavy participation (Groupon alone claims 55 million North American subscribers, of which at least 16 million have purchased at least one Groupon), we really haven’t been able to ascertain how effective Groupons are as a marketing tool.

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