Why Advertise with Groupon?
Groupon is the original and largest of the online daily deal promoters. They have an enormous customer base they can leverage to put your deal in front of thousands of local customers.
The program works like this:
Groupon sends out a daily deal in an email to their followers in an “expanded local” area. These deals frequently feature 50% off or better. For example, a deal might offer a $100 spa treatment for $45. Customers pay upfront for the deal and then they have a period of time to redeem their coupons before the expiration date.
This model tempts many small businesses.
- They can gain exposure with all the list members.
- They may attract new customers.
- They get this advertising without paying upfront, out of pocket.
Enough small businesses have been happy when they advertise with Groupon that the daily deal maker has been able to negotiate to keep 50-100% of the revenue generated. These businesses claim that the exposure has led to enough additional spending and repeat customers to offset the expense of giving away products and services for less than 25% of their retail value.
Other businesses complain that they misunderstood the costs associated with the deals and do not feel the model serves small businesses at all. They are unhappy when:
- Groupon customers visit for the deal only.
- Tips do not fit the full value of products or services received.
- High volume threatens relationships with current customers.
- People abuse the system by printing extra coupons.
Should You Advertise With Groupon?
Groupon might be a good option under the following circumstances:
- You offer a gateway product or service at a discount with a reasonable expectation of converting to upgraded, ongoing customer relationships.
- You have excess capacity you could fill without increasing your overhead.
- You can control your offering via appointments to keep redeemers from overwhelming your capacity.
Before you commit to a Groupon deal, you should understand that Groupon is a form of paid advertising. Although you do not pay upfront, there are significant costs associated with participating in a daily deal coupon model.
You can best evaluate the possible benefit to your business by considering the cost of each additional customer against any revenue you will generate, including extra sales above the value of the coupon and repeat visits by new customers. If that sounds difficult to gauge in advance, you are correct. Jay Goltz wrote about the equation for the NY Times, and he pointed out that a small difference in one of the variables can be magnified into huge gains or losses for your promotion.
Of course, traditional advertising benefits have always been very difficult to measure. Just because online tools allow us to better evaluate the success of Groupon and other daily deals, does not mean the promotions are necessarily better or worse than traditional broadcast promotions we could not measure as efficiently.
At the end of the day (or the deal), we are often left with a best guess at how many new customers were gained and kept from a promotion, especially for businesses like restaurants that do not have memberships or loyalty programs.
So, what did I tell my prospect?
Should his small business in Boston advertise with Groupon?
No, I did not feel the daily deal model would suit his business for two primary reasons:
1. His business has targeted a very specific group of ideal B2B customers. Although Groupon recently introduced targeted marketing in Boston, they do not at this time ask questions that would allow them to deliver deals specific to, for example, ophthalmologists who perform 25+ LASIK surgeries per week.
2. He has expressed a desire to attract customers who value the security his company offers over the risk of lower cost alternatives. Although I do not agree that every daily deal customer is a bottom feeder, I think a deep discount promotion would be inconsistent with the positioning statement he hopes to make.
What about you? I would love to read about your experience with daily deals whether you have participated as a business owner or a customer.
Do you plan to advertise with Groupon?