New respect for advertising in Groupon horror stories!

In Just Thinkin', The Marketing Microscope on November 29, 2011 at 12:22 pm

I came across an interesting post at discussing the electronic coupon voucher program Groupon.  Apparently, the tough economy and stiff Groupon pricing requirements are putting a squeeze on some small businesses, who feel they have to try it, but wind up getting buried, losing money, and regretting the decision.

In one example, a London bakery owner was really, well, frosted when she was forced to hire extra help to bake 102,000 cupcakes to satisfy the Groupon demand, and wiped out her year’s profit in the process. Some surveys cited in the story claim that 70% of small businesses “hate” Groupons!

One has to make all kinds of wild assumptions to draw conclusions on this, of course, but I have seen claims (even by business owners themselves) that had they invested the same money in advertising instead, they could have drawn enough new customers at full or nearly full price to deliver more incremental profit, and have a better chance of converting new customers into loyal, long-term ones.

I find this a fascinating discussion. It seems intuitive that Groupon users (and I’m not talking down here – I have used them and will continue to do so) are looking for deals. And unless you really present some incredible experience during their visit, they are likely to go somewhere else to use another deal rather than come back to your establishment and pay full price next time.   On the other hand, as some point out, it is your job as a business owner to provide them an experience special enough to change that equation.

I agree with both positions. (I KNEW I should have gone into politics.) I do know that, as a consumer, I feel a bit awkward when using Groupons, although I know it was the merchant’s decision to offer them. As an advertising professional, I feel as though the discussion is a bit “apples and oranges.”  A well-strategized ad campaign (based on a real point of difference that matters to the consumer, of course) is the best way to attract the kinds of customers you are most likely to keep. A Groupon-type promotion is likely to generate larger numbers of customers in the first place, but most of them will continue to ignore your business as they did before once they’ve gotten their “deal.”

It’s just a very intriguing discussion. What do you think?  Is the answer a Groupon “Light” service that offers a bit less of a deal so business don’t risk bankruptcy when they try it? Would a different type of promotion – or advertising – attract the customers who are willing and able to spend the money your product or service is worth in the first place, for a better chance at long-term success or survival?

Let me know what YOU think about the whole thing – I’d really like to know!  And for the next 14 days, I will allow you to post two comments for the price of one!

  1. Half a loaf is better than none…….it’s always better to make a little bit of money from a lot of customers than going for the home run on every swing…..unless you run the concessions at major league ballparks and their $10 beers and $8 hot dogs with a captive audience of fans…..then I guess they don’t mind watching a lot of money go home after every game……

  2. Does Groupon require a discount of a certain percentage in order to participate (ok read the article and its 40-60%? What about all the others from the national ones like Living Social, to all the various local only versions ( I know some Chamber of Commerce’s are running their own versions for their members) do they mandate a certain percentage? Could be that some of these smaller players are already tapping this small business segment by allowing 20-30% discounts, if not then it might be a good opportunity for a discount provider to position themselves as such.

    Getting back to discounting, having all these coupons and discounts breeds a type of mentality with some consumers to only to purchase with coupons (I am like this with pizza). So unless the service or product provided is an amazing experience as you mentioned, the consumer most likely has not become a recurring customer, and at best a casual customer. Small businesses have some tough decisions to make, if in that position I would have to think focusing on the product and service, and encouraging word of mouth promotion would be the best bet.

    • Good thoughts. And yes, I meant to mention the possibility of image damage, i.e., “gee, they’re using Groupon, I wonder if they’re getting desperate.” Until reading the article, I had no idea Groupon took such a big cut. I envisioned at least the lion’s share of the money consumers DID pay as going to the business, so they would be closer to breaking even, at worst.

      Smaller discounts, or a smaller “cut” taken by the coupon outfit, might be an answer. I wonder if maybe more creative freebies might make a difference. A glass of wine with your steak, or “sample an extra entree on us” that might better protect your value prop and only appeal to customers with long-term potential – and even broaden their experience with your restaurant (or other biz.)

      Oh, here’s one I WOULDN’T offer – and I’ve seen this many places: “free 14-point safety check with your oil change.” I’m betting that, oh, at least 98% of car owners who read that think only “yeah, what are they going to find and then tell me I need done to boost the ticket?”

  3. I agree with your post. I think that in the majority of instances, daily deal campaigns in which advertisers have to pay 40 – 50% commission is too much. The main purpose of the campaign is supposedly to get new customers. But, without some other type of marketing system, such as SMS, to capture coupon customers’ contact info, they are just giving maney away.
    The exception is businesses that provide non-inventory services like skating rinks, miniature golf and bowling alleys. These type businesses do not lose money on coupon sales

    • Good point on those non-inventory businesses – at least up to the point that increased traffic would begin to get in the way of or otherwise impact regular full-price customers.

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