There has been a lot of buzz about Groupon, LivingSocial, Google Deals and all the other online deals sites over the last year because of their ability to generate literally hundreds of leads for a business with seemingly no effort or upfront cost.
But savvy business owners are quickly realizing that their interests and the interests of these social deals websites are often not the same, and that poor planning can turn an engagement with one of these sites into one of the biggest mistakes a small business can make. Based on the experiences of a few of our clients, general marketing best practices, and a number of case studies online from business owners, we have compiled this list of how businesses can use Groupon without losing their shirt:
- Know how much you are willing to spend to acquire a new customer. In Direct Response theory, it is always emphasized that you should never expect to break even on the first sale; you will make your money on the lifetime value of your new customer. It is very important to know what a typical customer is worth to you, what the hard costs of your product and labor are, and then to expect a significantly lower lifetime value for those who are driven to your business because of a coupon. Businesses often end up discounting the cost of their product or service by 50%, and then they give away 50% of the money that is received to the online deal website. Make sure that your profit margins can absorb the discounts you agree to. Many of the success stories from online deals sites chose to charge more money (i.e., discount less) than the sales rep wanted, which kept out the coupon cutters and resulted in more serious, interested customers using the service.
- Know how many customers is too many. Most businesses only have capacity to handle a certain number of customers at a time, beyond which point you will be forced to turn customers away, potentially alienating new customers and loyal, repeat customers. This is often a foreign concept, since most of us think that you can never have too much business, but too much business can be a very bad thing if not planned for. Most of the online deals sites will allow you to cap both the date range to redeem the coupon and the number of coupons that can be “sold,” but you will often have to push the sales rep for these features.
- Have a plan to retain your new customers. Many of the users of sites like Groupon are so-called “web coupon cutters” who will never come back to a location once they have redeemed their coupon. This is especially important if your business is intensely local (like a coffee shop) but the online deals site will be attracting visitors from areas that make it extremely inconvenient to come back. Build loyalty programs that will be interesting to your new customers.
