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Groupon: Is it dangerous?

23 Nov, 2011 McKell Naegle

Note: As an update to the post below (written in early 2011), I found an article recently that describes how one company wiped a single year’s profits out in a single Groupon campaign. You can read about it here: This Bakery Had To Make 102,000 Cupcakes Because Of A Groupon Deal And Lost A Ton Of Money

In essence, 8,500 people signed up for the Groupon offer, and her crew of eight had to try and make 102,000 cupcakes to meet the orders.

The owner lost $3 per batch because she had to hire 25 extra workers to help, and she ended up losing $20,000 because of this Groupon deal.

Groupon, BuyWithMe, LivingSocial, SocialBuy, Tippr and many other online social couponing companies are all the rage.

Even local coupon deals (Salt Lake City has KSL Deals, Go Deal Go, and others) are exploding in popularity.

Offering huge discounts, they have attracted many people and their growth and been exponential.

Branding Strategy Insider recently wrote on the dangers of social couponing (from a business perspective.)

They said:

“These social coupon sites promise high customer demand in return for a deep discount and a share of the deal. In August, Gap offered a nationwide deal of $50 worth of apparel for $25 through Groupon.  Some brands and businesses are offering social coupons directly, including ConAgra, Jack in the Box, and Walmart. However, the biggest participants have been small and mid-size businesses.

But tread carefully before you join the social coupon bandwagon. Running such deeply discounted deals can create a short term volume spike that backfires in the long run. There are plenty of cautionary tales from brands and businesses that didn’t do the math and regretted it.”

The BSI article shares that Entrepreneur Magazine recently profiled a Rice University study of 150 small to mid-size businesses that offered a social coupon deal with the following results: “while 66 percent of the 150 respondents said that their Groupon deal was profitable, a significant 32 percent found it unprofitable. And 40 percent of the respondents said they would not use Groupon again.”

Fluid Studio believes couponing is good to get people in the door; a “loss leader” to get them to try your business. However, you need to know your margins and the type of customer you will be bringing in your doors. If they don’t come back, think about the business repercussions.

Create a strategic plan and tactics to glean information to create a robust prospect/client database when these people come through your doors.

Fluid Studio recently worked with Bootcamp with Jess, a Utah fitness bootcamp franchise with multiple locations, on a social couponing campaign. They did quite well in numbers purchased (and probably broke even on what they sold). They filled many of their classes in less than 1 week. The true test is this: will those who finish their 6-week bootcamp sign on for another session at full price? If the answer is yes, their test of social couponing will be successful (and we will probably suggest they do it again).

The biggest thing to remember: the value of a brand is not made in one day or on a single sale. You can get them through the door once, but can you create a repeat customer? That is key.

Note: Image contributed by Tom Fishburne


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