Last week, Groupon set the world ablaze, when it launched its first national promotion – offering $50 of Gap merchandise for $25 in every market on the same day. The campaign was an amazing success – so successful, in fact, that its site had trouble handling all the traffic and its server went down multiple times. It personally took me four tries until my purchase was completed!
Gap’s offer was the largest daily sale Groupon has seen since its inception in 2008, with about 440,000 coupons sold. This translates to $11 million in revenue that the site splits (typically 50 percent) with its partner.
With all of the recent buzz around Groupon, we in the advertising space are forced to question the value of the online coupon website for our clients. For those of you who were not one of the 440,000, Groupon is a subscriber-based site that sends daily e-mails with one heavily discounted deal for a local business. These discounts are for a limited time only and have an average markdown of 25-75 percent. While Groupon seems like a no-brainer to consumers, it must be carefully examined by the Groupee.
Take Gaps’ offer for example. This deeply discounted offer, though an immensely successful social media campaign for Gap, translates to a substantial loss of potential profits for the retail giant – $11 million to be exact (and this doesn’t account for the $5.5 million in sales they will split with Groupon).
Julie Mossler, a spokeswoman for the site, said: “Local ‘brick and mortar’ businesses are the foundation of Groupon. They provide businesses with a window to a desirable audience that may otherwise not be reached. The hope is that once a new customer is exposed they will have a positive experience and the establishment will acquire a long-term customer.”
So, for those of you who are not Gap, how do you know if Groupon is right for you? MGH recommends you answer the following questions before planning your first or next offer:
1) Is local advertising a key part of your marketing plan?
Groupon is a hyper-local social platform. Local advertising typically means buying space in a local publication in hopes it will make consumers aware of your company and utilize your services. In contrast, Groupon doesn’t cost you, the merchant, anything up front. Sending the e-mail blast in any given city is absolutely free. Groupon then collects the money from purchases, takes a percentage, and pays the business for all the Groupons sold. The business simply honors the Groupons as customers come in the door with their printed coupon.
2) Will it successfully reach your target audience?
The typical Groupon user is one of the most desirable demographics around:Â young, active, employed, college educated and female. This group, relentlessly networking with their friends and colleagues via an endless lineup of social networks, has disposable income and is constantly on the lookout for the next big thing to Tweet about. As a result, many Groupon merchants have enjoyed viral success in addition to tangible revenue.
3) Does your business offer the right kind of product or service?
A large variety of businesses have been featured on Groupon (The Maryland Zoo in Baltimore, The Brewer’s Art, YMCA, CakeLove and Bikram Yoga Baltimore). Consider creating a unique offer, like a behind the scenes tour or special meal, to further entice sales.
4) Can you handle the discount?
You’ll need to discount your product or service by at least half, before splitting the remaining revenue 50/50 with Groupon. Essentially, you’ll make 25 cents on the dollar, or less, so it’s important to look at Groupon as a marketing and advertising tool – via promotion on its website, Twitter, Facebook and email – rather than a mass sales tool. But, use it sparingly; you don’t want customers to come to expect these discounts and hold off on purchases in between your offers.
5) Are you prepared for the new customers?
When a Groupon offer is created, it is blasted to an average of 100,000 subscribers per market. With a redemption rate of about 66%, this could yield 66,000 potential new customers. When working with Groupon, be sure to specify the maximum number of coupons you can handle and be prepared to incur the additional expenses that will come with an influx of business.
Groupon is in the process of rolling out “Personalized Deals,” which will allow companies to reach a subset demographic based on gender, buying history and interests. This will allow Groupon to rotate more deals to targeted lists per market per day. This new targeting opportunity will allow the site to grow and reach more of the male audience by separating many of the female-focused deals.
Groupon is a great way to gain exposure to new customers and provide existing ones with a reason to revisit your establishment. If your company sells durable goods that most customers only buy once or twice in a lifetime, Groupon may not be a sound strategy. If you traditionally attract a repeat customer with a high lifetime value, Groupon just might be the way to go. Yes, you may lose some profit up front, but if that customer 1) returns and buys something and 2) tells their friends about you… we all win!
