To Groupon? Or Not to Groupon?

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By Lisa Rhodes, Rhodes Morell Communications, CT

Social commerce or buying sites such as Groupon and LivingSocial are popping up at an astounding rate. (In fact, it is reported that Groupon is one of the fastest growing companies in the world.  Their proliferation – on the national level as well as on the micro level – make sharing hot and seemingly scarce deals with friends easy to do. Capitalizing on basic social principles, these buying sites are fast becoming part of the social media playbook.

But, are they good for a brand and a business? This debate no doubt will continue as players such as Facebook get into the game. Facebook Deals allows “users to share purchases with friends via their Facebook update stream, as well as let one user “unlock” a deal and then share that same deal or discount with friends.”

In a recent post on iMediaconnection, Francois Gossieaux, Co-founder and Partner of Human 1.0, adamantly stated that Groupon is bad for business and for consumers based on basic business fundamentals.

Profitability:  Once people expect a product at a certain price, it is very hard to get them to pay more for it. So if you are going to discount your products or services by 50 percent, you will find it almost impossible to ever get paid what you used to get paid before. Discounts not only destroy your profitability, but they also destroy the profitability for every other business around you; they destroy the profitability for entire geographies or industries.

As a Groupon affiliate, you could find yourself selling tons of products and services at 75 percent off from what you normally get to the same people over and over again, for months. Not only that, but regular customers, those who have been paying full price for years, are likely to hear about Groupon offers and use them as well — and there is no way anyone can justify the profitability of existing customers that way, even when making more than 75 percent margin on product or service offerings.

Customer Loyalty:  You cannot build a lasting competitive differentiator based on pricing — pricing is the only differentiator that can be copied by others in a matter of seconds. Plus, it does not help you build loyalty. If customers buy your products based on price, they will go wherever the best price is. Coupons only make sense if you can attract new customers and if you can get those new customers to buy more products at full price — and clearly that is not what is happening. According to a study by Professor Utpal Dholakia from Rice University, only 13 percent of Groupon users buy additional products at full price.

On the other side of the fence, marketers say that these sites offer new businesses a great way to launch and introduce their services and products to potential customers. It’s all about getting people in the door, or trying the product. And, they leverage basic social instincts: getting a great deal, wanting something that is ‘limited,’ being in the know, and sharing with friends.

It seems to me as brand protectors, we need to be mindful of the long term impact of these sites and craft messaging delivered through them that will ultimately maintain a brand’s reputation, build customer loyalty and repeat business. I am sure that we all have seen remarks such as one in a recent EaterNY post sounding the death knell for a two-month-old restaurant needing to offer deeply discounted coupons to get diners in the door. So, does offering a 50% coupon automatically say that a business is in trouble?

As social buying sites become more and more popular and part of a total social media campaign, that once again, to ground their use in the basic business strategies developed for a client is important.

What is your experience with these sites? Love to hear your feedback.

 

 

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2 Comments

Barb Harris

Knowing a lot of restaurateurs, they dislike Groupons. The customers that use them usually never come back without one. Also, it is widely known in the industry that if you’re having financial trouble, do a Groupon deal, get the cash, and then, well, if you close, you don’t own anyone anything. It’s a horrible PR move, for both the restaurant (but they don’t care, as they’ve closed) and for Groupon.

Personally, I only purchase groupons for things I use otherwise, and the retailers are okay with it as they know I’ll be frequenting them at full price as well.

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Kathy Day

I have a client who had a retail product that most people didn’t understand or want unless we could get them in the door. For that client, it made sense to offer a Groupon, and it paid off. I agree with your advice to use caution in this arena. Just because it works for one business, doesn’t mean that it does, or doesn’t, work for another.

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