Last weekend I had breakfast at the Brown Bag in Seattle. I started talking with the owner and he told me he was running Groupon that very day. He had sold 150 coupons already for what amounted to 56% off a meal.
If you are not sure what Groupon is, it’s a daily email for an outrageous discount for a single business per day. Companies have sold hundreds to thousands of coupons for everything from massages to meals to dog grooming.
Companies wanting to participate in Groupon, typically provide discounts of 50% or more. This can be costly because Groupon takes 50% of what is left over. Now, your net is 25% of your normal price and your Groupon advertising expense is 75% of your revenue.
If this sounds like a great idea, consider these questions: a) will the coupon attract your target audience or a different one? b) will you be creating an adequate repeat business or an adequate opportunity to up sell the customer? c) what is the expected lifetime value of the customer, in other words, will they return or are they here for the discount? c) what other marketing vehicles work equally or almost as well for less than 75% of revenue? and d) how will existing customers react to other people getting an outrageous deal they didn’t get?
Groupon works well for companies with very low variable costs and high fixed costs when the business is well below capacity. If this is your situation, Groupon may be a component of your marketing. Evaluate it carefully before you act, because sometimes a steal, really is a steal.
For more information about Groupon go to Groupon’s website.
