Groupon is like Super Bowl advertising.
It definitely creates awareness, but it does so at a price – one with consequences that should be carefully considered.
Much has been written about the direct costs of running a Groupon campaign. However, it’s the side effects that bother me. And they extend long after that Groupon has expired.
You can easily examine them by putting on your traditional marketing hat – the one you used to build your business and sustain the customer base you enjoy today.
It Sends the Wrong Message
Large corporations are known for throwing advertising dollars around. They entertain us with over the top super bowl ads that build brand awareness – and maybe a short term spike in revenue.
Small businesses invariably are built from personal relationships in local communities. People in communities talk, so its essential to treat them all fairly and equally. This keeps your life simple and generates more referrals.
Let’s say you operate a lawn care business or one where your loyal clients are contracted or subscribed on an annual basis. When you offer a deal to new prospects you devalue their loyalty.
While you may gain some new customers, one of the hidden costs is losing current customers that view your new marketing practices as unfair. It’s a risk.
If you really do have the money to spend, why not invest in your current customers? You could offer them something like a recession discount at a time when they may need it most.
Trust me, they won’t forget it when their contract or subscription is up for renewal.
It Attracts the Wrong Customers
In addition to cannibalizing on profits from loyal customers, a Groupon campaign can attract new ones that are only there because of the deal.
During the 20 years I successfully operated my landscape architecture business I never once did Yellow Page advertising. OK, maybe once, when I was just getting started and didn’t realize that everyone that called was shopping my business against competitors advertising right next to me.
This is why when we received a call from someone we didn’t recognize we always asked why they were calling us. Most were referred by a customer or had admired our work on a recent project.
We discovered those looking for the lowest price were open and honest about it. We respected that and kept a list of phone numbers handy for companies that offered a low price and respectable quality.
That authenticity occasionally opened some minds that had previously not factored quality or service into their equation.
It Creates New Expectations
The cardinal rule of negotiation is that if you concede once, you will do it again.
This is why you need a very good reason for offering a steep discount via Groupon. Unfortunately, to my understanding there is no means for communicating this to your community.
Groupon did not earn a $6 billion offer from Google by customizing for every one of their customers. They earned it by developing a repeatable formula that Google could readily monetize by expanding it even further.
Anyone that understands retail knows you pay full price to be the first with the latest fashions – or you can wait and get them at 50% later. This is why I buy my suits at Nordstroms annual men’s sale.
However, if you are a small business, it’s unlikely your product or service is mass produced – one with a huge mark-up that you can give back if you wish.
You work just as hard for new customers and you do for those that have been with you for years. You track all kinds of costs, including overhead and labor hours – and all of them tend to rise over time. If everything goes well your net profit is probably around 10%.
So, where is the justification for offering a deal?
The only one I can think of is to make your existing customers happier. So, instead of investing in Groupon, invest in them. Think of it as a gift.
Would you like to experience Groupon first-hand without investing a dime? Then read why cafe owner Jessie Burke describes her experience with Groupon as The Single Worst Decision I Have Made as a Business Owner.
It’s a heartfelt account, and the comments from hundreds of fans share some insightful details as well.
To her credit, she didn’t write the post to rant, just to respond to one loyal client.
That’s what small business is all about.
If you want to learn more, you can read an additional perspective and watch a series of videos about Jessie’s experience here.
Invest in your clients.
It’s a no-risk play that is always good for your small business.
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Until tomorrow, Jeff