Is focusing on coupon-clickers the right strategy?
The Urban Dictionary defines Groupon Anxiety as: the preoccupation and feeling of anxiousness and not being able to sleep knowing that a new Groupon will be released after 1am. I define it as the knowledge that too many small businesses are launching these promotions without thoroughly evaluating both the upside and the downside risk. Hence, my article on this topic in today’s Milwaukee BizTimes.
It may seem that, in the article and this follow-up piece, I am skewed towards the negatives of social couponing. That is because, as pointed out in the BizTimes piece, these promos are unprofitable for 1/3 of the business that do them, and nearly half would not do them again. So my goal is not to bash social couponing as a promotional tool, but rather to better equip the business owner to assess the true value, form the best strategy, and make sure they are not in the wrong 1/3 at the end of the day.
First of all, here is a quick reference list of ten questions to think through before you commit to a social couponing promotion:
- What is your objective? What are you trying to accomplish?
- How specifically do you think that a social couponing program will help you achieve that objective? In other words, what is your strategy? Is that strategy realistic?
- What other marketing strategies might help you achieve that objective, and why is this the best one?
- For example, is your customer experience all it should be? Is there more you could be doing to be truly outstanding and generate more positive word of mouth?
- Can you cap the number of coupons that are sold, to ensure that you are not losing an unacceptable amount of revenue? Have you thoroughly worked through the finances of the promotion to project specifically how much of the revenue the site will keep and you will keep?
- Can you structure the promotion in a way that it will benefit you most? For example, can you make it redeemable only during periods when you have extra capacity? (Talk to multiple social couponing sites, not just one.)
- Have you monitored specifics of deals that your competitors or other businesses have offered to ensure that your offer is competitive and that the terms the site is giving you are fair? A shout out to Jim Kasch of the thoroughly delicious vegetarian restaurant Cafe Manna for this tip.
- Have you prepared your employees for the promotion? Are they ready to provide a positive customer experience for both new and current customers?
- What will you do to encourage repeat business from the new customers? How can you capture their contact information so you can invite them back?
- How will you measure the success (or failure) of the promotion? Don’t assume that the site will do that for you.
Second, I would counsel any business owner considering one of these Groupon promotions to do some additional reading to help inform their planning. Here are some good places to start.
Inside Group Buying: Seven Small Business Success Stories features a small business roundtable on this topic. Some of the business owners saw positive short-term results, and overall they are more positive about the experience than some others I’ve seen. However, they also do a good job of pointing out the long-term considerations. As one owner indicated: “In some ways, it’s hurting loyalty to a brand. They [customers] absolutely love what I do, but say [a company] who’s trying to copy me puts a deal on LivingSocial. For those who don’t want to spend the money on the full price [of my service], they can keep going from deal to deal to deal to deal.”
Ask yourself: through over-reliance on dealing, are you and your competition just conditioning your customers not to pay full price? Maybe there’s a better strategy than matching your competitor’s deal with a deal. Like building a brand, and a customer experience, and a passionate, loyal following that your competitors can’t touch. Joe Sorge, owner of Milwaukee’s AJ Bombers, says: “As a company we prefer to focus on being remarkable in our product and in our guests’ experience to earn repeat business and referrals. In my opinion, marketing your business by virtue of a deep discount to your product is simply not a sustainable business model, a race to the bottom if you will. That’s not to say that we don’t offer discounts at all, we do, but they are typically offered as a “thank you”.”
I couldn’t agree more with Joe’s approach. While promotions have their place in a marketing plan, if your only strategy is a promotional one, then you need a better plan.
For more on social couponing strategy, check out Groupon: Is Google Making a $6 billion mistake? (Groupon took Google’s $6 billion offer off the table; however, the advice in this article should remain on yours.) It lays out the three most common strategies that small business owners often have in mind when embarking on Groupon promotions, and some of their fallacies. The first is using it as a back door to attract the more price-sensitive customer segment. The second is as a loss leader to higher-margin sales. The third is hoping the new customers from the deal will become regulars, which the author refers to as the “shakiest” proposition of the bunch. The author of Why Employees Can Wreck Promotional Offers, Rafi Mohammed, seconds that opinion and also cautions against believing that social coupon deals can be a way to generate long-term, full-price customers. The reason for this is so obvious it’s almost painful: “Once a rock-bottom price is set in a customer’s mind, it’s a challenge to get them to pay significantly more.”
So very true. Be realistic. What, really, are the odds that once you drive trial at a super-cheap price, people are going to see the value in coming back and paying twice as much? It just doesn’t hold up to reason, most of the time.
On a positive note, though, there are success stories, like this one in Is Groupon Good for Small Businesses?; also, Social Coupons and Small Businesses Part 2 does a good job of recapping some of the key issues you might face and how to avoid them. For another perspective, check out Jason Falls’ post on the topic, The Good and Bad of Groupon and Small Businesses.
What do you think? Do you agree or disagree? Any questions, post in the comments or call me directly at 414.270.3243. Happy to help.