I came across an interesting post at mashable.com 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!