Should You Be Using Group Buying Sites?

Group Buying Deals May Be Worth a Try

A SIPA Marketing Listserve post earlier this year referred to a Groupon “Daily Deal” in the Boston area that day: “$39 for a One-Year Subscription to the “Wall St. Cheat Sheet Premium Newsletter.” It listed the value as $149. It’s curious though that the sales writer attempted to be humorous almost from the start: “Stock tickers help brokers monitor the vitals of the financial market, keep track of their investments, and, when read backward, reveal the municipal budget for the lost city of Atlantis. Learn to navigate the constant stream of financial information with today’s Groupon…”

And later it turned into a metaphoric landslide: “The glossy, virtual covers of each issue sandwich a hearty loaf of economic news between a helping of expert commodities advice and a healthy dijon spread of infographics.”

Wow. But the main question is still, are group buying deals a good way for small businesses to proceed? (If, in fact, you can get accepted by them, not automatic, I believe.) Carolyn M. Brown wrote an article this week listing some pros and cons of using Groupon. Have a broad strategy, she stated. Such a promotion should not take up a big portion of your budget and should be part of a larger social media strategy. And know what you want to accomplish. A recent Rice University study “found that the ability of employees to handle the surge of business from bargain shoppers, for example, was critical to the success of that company’s particular promotion.” This probably applies more to a restaurant than a niche information provider, but still matters.

Groupon keeps 50 percent of the revenues from each coupon deal, so “business owners [should] think through their costs and how they are going to make money on the promotion,” Brown wrote. Hence they can lose money. It’s key to structure the deal, or more specifically, the copy, so it might lead to cross-selling or up-selling to your new customers—something SIPA members are pretty good at.

Here are the pros that Brown lists for using Groupon to sell:
1. It attracts a lot of consumers. You can reach new customers by appealing to those who are looking for inexpensive deals and a chance to save money—and it does not cannibalize sales to existing customers.

2. It advertises your business. A Groupon promotion can be a way to announce the existence of your business to consumers who are unfamiliar with your products or services. Your promotion must grab consumers but also increase your potential conversion rate for repeat customers.

3. It helps move inventory. Use Groupon deals to sell slow-moving items in your inventory or unutilized services. A Groupon-type promotion should be something that you do once in a while for a specific, narrow, limited reason.

4. It builds relationships. Use price promotion deals for building customer relationships rather than just creating one-time buys. In other words, an annual subscription trumps a white paper or book.

5. It generates incremental revenue. If you have a low-cost or fixed-cost structure, you can make money on promotions.

And here are her cons:
1. Deals attract low-end bargain seekers. To be safe, businesses need to put a cap on the number of deal coupons sold.

2. Deals may hurt the brand. When consumers get something at a much lower price, they then may become less inclined to pay full price for that same product or service in the future.

3. Deals may not generate repeat customers. Groupon has a low conversion rate for repeat customers, according to marketing experts.

4. Deals may not profitable. That 50-percent split means you have a lot of making up to do.

5. There may be better deals out there. Is this more beneficial for you than offering a discount or promotion on a Facebook fan page? Or Tweeting a special offer to your followers? Hard to say.

“The bottom line,” wrote Brown, “is that a good deal or promotion should attract customers, give them the flavor for your company’s products and services, and then let them buy whatever they want at full price.”

Has anyone had experience trying to sell through Groupon or LivingSocial? Please let us know what happened by commenting on the SIPA website or posting on the marketing listserve. Thanks!

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