Turns out there’s something to be said for being capitalist, and a rather large downside to being a profiteer. Unfortunately, Groupon is just finding this out.
The Groupon IPO is in trouble after the SEC (Securities and Exchange Commission) informed them their revenue reporting is out of whack.
Apparently, Groupon has been reporting the full value of a Groupon sale as revenue – in spite of having to give at least half that value back to the store owner. The result is that they’ve had to change their revenue claims from $1.52 billion for the first six months of 2011 all the way down to $688 million.
That has to be the world’s quickest way to lose a billion dollars!
If you’ve been listening to the show over the last few weeks (SocialMediaCheapAndEasy.com), you know I’ve been driving home the difference between Profiteering and Capitalism. One of the targets of this point has been ALL the daily deal sites.
It’s common to hear marketing and internet gurus talk about having the “tollbooth position.” This is where you control access to the traffic – just like a tollbooth controls access to a roadway. People have to go to you if they want access to a particular audience.
The daily deal sites have taken this idea and exploited it to the full potential that their profiteering little hearts could imagine. They tell you, the business owner, to discount your product or service by at least 50% – an incredibly bad idea to start with.
Then they build on this bad idea by making you pay them up to half of the coupon sale. That’s right, you can be left with as little as 25% of sale. And the daily deal sites are wondering why they have so little repeat business.
If any of these daily deal sites has a lick of sense, they’ll cut their commission to just 10% and start encouraging business owners to use premium offers rather than discounts.
A premium promotion is when they get a free gift based on their purchase. For example, you give them a free shirt with every suit. Or they get a half price manicure with their perm. You can even do a cross promotion with another business – a massage therapist gives a facial spa treatment with every one hour massage booked during a specific promotional period.
In the case of a “daily deal,” it would be during a specific day. You can just as easily tie this to a business anniversary, your birthday, the customer’s birthday, or any other special event.
There are far too many businesses following the lure of “grab as much as you can for as long as you can.”
That philosophy is what has landed Groupon in hot water, and put their IPO into danger. They’ve been exposed as dishonest and misleading. And even though there are lots of Wall Street types who will shamelessly promote anything, the public has definitely lost confidence.
Add to this that most business owners are finding no value in daily deal offerings, and you have a recipe for a failing industry.
Business owners are finding that discounts do nothing to encourage repeat business. The people who come in with a daily deal coupon tend to get their bargain, leave, and never return. So a business gives up 75% of its sales for a one-time burst of activity, and a significant loss of profit.
You’ll be much better off offering a premium with a specific reason for the promotion (birthday, anniversary, holiday), and a deadline. Make the deadline short – it can be as little as a 3 or 4 hour window on a specific day, or as long as 30 days away.