The Groupon Strategy

Groupon has had wild success since its inception and earlier this week businesses and media were trying to make sense of this new e-mail tool.  Forbes has recently donned Groupon with the title “fastest growing company…ever.”  There have been a growing number of success stories from many businesses that have seen a surge of new clients when they execute a Groupon campaign offering discounts to the customers who sign up for their daily emails.

Cited from the article Groupon: Is Google Making a $6 Billion Mistake? the Boston barbecue chain Blue Ribbon BBQ offered $15 worth of BBQ for $7.  More than 16,000, people bought the deal which gave the chain a revenue return of $250,000 in less that 24 hours.

But is Groupon right for every business?  There is an unaswered questions that a business needs to consider before investing in a Groupon Campaign:

  • Are these discounted promotions good for your business?

That all depends on the goal of your campaign.  Evaluating your purpose and goals is important before embarking on an e-mail campaign like this. Ask yourself:

  • Are you using the Groupon promotion to sell products and services to customers that are price sensitive?
  • Are you hoping that Groupon will be a loss leader and allow you to sell higher-margin products?
  • Or do you hope that once your customers try your product, they will be open to paying full price next time?

The first strategy is logical for many businesses.  Offer a product at a cheaper rate in order to attract new customers to their business.

Loss Leader is a great strategy and a tried and true business practice.  The purchase of an inexpensive product in order to lead your buyer into purchasing a more expensive one.  But those who sign up for Groupon are budget conscience so it is important to be realistic with your expectations.  Do you really think they would be open to purchasing a $7 Candy Bar.

The last strategy has the greatest risk.  Does it make sense that you would pay for a product at a deep discount and then come back again to pay for it full price?  There is also a customer or two that would be willing but do not over exaggerate that return.

Here are some points for how to use promotions to generate full-price paying customers:

  1. Offer a product that serves a need – A great example of this is a dry cleaning company that offers a home delivery promotion.  You need your clothes dry cleaned, once the promotion is up, you are hooked.
  2. Make sure your product is the best alternative to competition – if you are a restaurant offering a discount on a speciality or menu item, the customer may go once to take advantage of the discount, but repeat business is not likely because there are other viable options between your business and their home.  It is best to promote to a geo-specific location with this kind of promotion.
  3. Do not devalue your product in the mind of your customers – If you set your price at the bottom, that price will be embedded into the mind’s of your consumers.  So avoid that pitfall by keeping your discounts within reason and offering special conditions like “promotions only good during off-peak hours”

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