- NetRev Marketing
Are you losing business from Deals or Group-buying websites?
Disclaimer: We are not against these sites. It is a great marketing concept for acquiring new customers but there are Advantages and Disadvantages when running a deal with group buying sites. (In this article, we will use Groupon as a general term for all these group buying sites.)
1. No Upfront Fees – It costs nothing to run a deal. You pay by how many vouchers Groupon sells for you. However, you split the profits with them.
2. New Customers – Obviously, when running a Groupon, your business will get new customers. These Groupon sites have huge buyer lists so whenever you run a deal with them, it can easily get you new customers.
1. Greater Expenses
Typical deals featured on sites like Groupon are discounted by 50% off the original retail price. On top of that, Groupon keeps 50% of all voucher sales that it obtains for its clients. Thus, business owners generally earn only 25% of what they’d normally make an any sale generated through a daily deal website.
2. Brand Dilution
The reduction of prices by huge demand nowadays a lot of sites Groupon seriously damage the brand image. This can be particularly harmful characters that are related to products and services of better quality. Discounting the price of the brand should be easy enough to reduce the perceived value for the customer and suppliers of quality products and service are not the only ones that can dilute the brand. Discount use a lot of sites too often can educate customers to wait until the next promotion is offered before the second purchase. Branding is a huge part of my success and if not done correctly it can have adverse results.
3. Attracting the wrong customers
Some business owners that have used Groupon to promote their services in the past have commented that Groupon buyers are not the kind of customers you want. They’ve complained that daily deal buyers are just out for the deal and they will spend as little as necessary at your establishment in order to redeem their deal. This includes lower tips on average and a lower rate of tipping.
4. Many customers are too fast
The group purchasing power to mobilize a huge number of people in the workplace. Although it’s always nice to gain a new sale, with the heavy traffic within a short time can be devastating to a business that is not ready. If you do not have the power of a man ready to respond to this huge influx of new customers, the quality of service is to provide your clients will suffer.
5. Declining profit margins
Forget making a profit from customers who purchase offers. Most companies offer deals that lucky to break even. Remember, you are only 25% of what you normally win if your business over the original price of 50% (Groupon takes half as well)
6. Short lived exposure
While daily deal sites can generate an enormous amount of attention for your business, that intense spotlight only lasts for a few days. After that, it’s all downhill in terms of deal impressions and the battle to deliver unprecedented customer service to stingy deal crazed consumers begins. Can your business and employees survive that added pressure?
1. It’s incredibly risky.
If you select a popular money maker product and service to discount 50% – 90% AND split the remaining few dollars with Groupon 50/50, then you are absolutely killing your profits.
So, previously you were getting 100% of the profits to cover the costs of buying product, materials, staffing, rent, utilities, payroll etc., BUT NOW you are getting pennies and still have to cover the INCREASED costs because you’re doing more business.
Even if you use a product that you are unsure will be a good seller, then you must still buy the product, materials and etc. to have it on hand just in case tons of people buy the Groupon voucher.
2. The math doesn’t add up.
You give 50% discounts and the remaining 50% will be split between the business and the Groupon site. You even pay for the merchant fees. And sometimes, some group buying sites will not pay you in full right away.
3. Groupon Bargain Hunters are not loyal to you.
Groupon builds their own brand loyalty and does not generate any loyalty for your business.
The customers often feel that Groupon is the one giving them the deal. Not your business.
The customer loyalty is to the best deal and not your business.
4. Groupon brings you the least profitable customers.
Before you think I’m stereotyping, just think about it… Before Groupon came along, what would you tell a person who wanted a 60% – 90% discount on your product or service? Get lost…right?
Would you then want that customer to tell their friends and family, who would then come into your business and want the same discount? Heck, no! – Many of these customers are generally the cheapest types of customers who ONLY want the lowest price.
5. Groupon is NOT a coupon. It’s more like a gift certificate.
One of the things that Groupon will tell a business owner is, “Many people will not actually redeem the coupon.” But, it’s not a coupon because customers MUST buy a voucher first. Which means the redemption rate is closer to 90+% or more. It’s not like coupons where few people actually redeem.
In fact, because it’s NOT a coupon, the legality of it having an expiration date that’s less than state law requires is still being decided.
Many merchants won’t say this (because they probably don’t think about it in purely economic terms) but Groupon’s model — almost by definition — weakens the lifetime value of its customers for its merchants. Groupon ends up owning the customer, the merchant doesn’t.
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