Is Groupon Worth 75% Of A Sale?

Welcome to our new 243 community members. Thank you for joining us.

This week’s episode of Social Media: Cheap and Easy brings up several points that need more discussion. But since I promised to keep each post to one topic…let’s focus on Groupon and your small business advertising.

FYI – the other topics are:

1. YouTube – how to use it, and video in your marketing
2. Social Media TV – we’re ready to launch the TV show (video in action)
3. Integrated Marketing – this one episode covers e-mail, video, coupons and lead generation

I’ll know you’re interested in these other topics based on how you comment on this one.

Now on to Groupon…

They’re in the news this week because they’re planning an IPO (Initial Public Offering) and because they’re doing a deal with Expedia. These are great things, and good news stories, but the question for you and me is:

• Is using Groupon worth giving up 75% of a sale?

Here’s a quick run down on how Groupon works.

1. You register with Groupon and design a promotion.
2. The promotion must give a discount of at least 50%.
3. Groupon subscribers buy your promotion.
4. Groupon keeps 50% of that sale and sends the rest to you.
5. The most you get from a $100 retail sale is $25.

Groupon says they’re successful because 97% of businesses ask to featured again.

I say Groupon is successful because business owners are thrilled by the traffic generated. Unfortunately, all that traffic is coming at a tremendous cost.

How many restaurants and coffee shops (big users of Groupon) can survive by giving away 3/4 of their sales? Getting lots of traffic from your small business advertising is great, but it’s only the first step.

Before you get the wrong idea, I DO think Groupon is a very good service. You should definitely develop a plan that allows you to put your small business advertising in front of their audience.

I also think Groupon is heavily focused on their own bottom line. They don’t tell you how much it’s going to cost until you’re on the phone with a sales person – or speaking to one in person. I spent 45 minutes scouring their site for this information and didn’t find it.

They make a point of talking up all the “new customers” you’ll get. They even go so far as to say that all the new customers you get from Groupon will vastly increase the size of your business. That’s a load of crap.

I was appalled to see the Groupon video that claims business growth comes from offering deal after deal, month after month. That isn’t how growth happens, and Groupon is flat out lying.

Groupon is an excellent lead generator. It’s even oriented in the right direction – you make a sale to get a customer. (A lot of small businesses  do it backward – they get a customer to make a sale.)

But offering massive deals to people month after month is a fast road to bankruptcy. You’re effectively training them to never pay full price. Fortunately, there’s a solution to this dilemma.

First, make your Groupon offers only to first time customers. Deliberately use it as a lead generator. Groupon allows this – even if they don’t like it. Small business advertising – all advertising, really – is about getting people through the door or to your website.

Always remember that advertising is only one piece of marketing.

Second, once someone becomes a customer, treat them differently. Send them a thank you for having come to your store, and include a bounce back offer. A bounce back offer is something that causes them to return to the store or website to make a purchase in some way.

Be sure the bounce back offer is something other than a straight discount. For example, give them a free doughnut with a large coffee. Or a free manicure with a perm. The only straight discount anyone gets is when they’re a first time customer. After that, they get purchase bonuses.

Third, add your new customers to your print newsletter mailing list. Add them to your e-mail list, too, but be sure they’re on your print newsletter list.

Don’t have a print newsletter? Hmmm…Please don’t take this as being rude. If I’m saying flat out to add them to a print newsletter mailing list, do you think it’s because I know – 110% – beyond doubt – and absolutely – that a print newsletter is a powerful sales and loyalty tool? Instead of saying you don’t have one, you should be writing a comment on this post saying you need help developing one. It’s easier than you think, and hugely profitable to your business.

Now you can see how this week’s episode of Social Media: Cheap and Easy got me thinking about integrated marketing. Listen to the show to know more about YouTube. And I’ll have to write another post this week about the new TV show.

What do you think of Groupon? Have you used it?

And if you did, what have you done with the traffic that came through your door? Or are you just giving people deal after deal and hoping lots of activity/sales equals profit? Leave a comment to tell me what you think.