The last time I tried to redeem a Groupon, I arrived at the sushi restaurant to find an “out of business” sign in the window.
The restaurant had launched a daily deal promotion six months before. Half-price sushi at a good restaurant is a great deal for consumers (more interesting than the eyebrow waxing and air duct cleaning deals I usually see). Sure enough, the restaurant was suddenly and constantly full, and I saw Groupon printouts on most of the tables every time I went. From all the traffic, it looked like a very successful restaurant — until the moment they went out of business.
The daily deal bandwagon of the last couple years has created a number of cautionary tales like our neighborhood sushi restaurant. I think the lessons apply to any premium brand that uses price promotions, a tactic that long predates Groupon of course.
There’s a role for price promotions to bring in new consumers. But tread carefully. Deep discounting carries seen and unseen costs. Beyond the discount itself, it can bring in deal hunters who will never buy full price and it can train your customers to only buy you on deal. If you’re not careful, it can irreparably impact your profitability.
Here’s an early cartoon I drew way back in 2003 on the deep discount mentality.
I also drew this cartoon, which is now part of the official Harvard Business School case on Groupon.
There are many ways to create value for customers. Instead of just dropping price to bring in new ones, give your current customers something to talk about.
(Marketoonist Monday: I’m giving away one signed print of this week’s cartoon. Just share an insightful comment to this week’s post by 5:00 PST on Monday. I’ll pick one comment. Thanks!)
Paul (from Idea Sandbox) says
June 4, 2012 at 6:15 amYep… the minute you offer your $500.00/$5.00 at $399/$3.99 that becomes the perceived price point for that product.
Why would I ever pay full price when I KNOW it can be had for less.
More than likely the business model wasn’t built on making profit at the Groupon price… and… as you’ve indicated… places go out of business.
I’m hoping people are realizing that using Groupon type methods is also an indication of desperation.
I’d love for business owners to think… “Hmm… If I’m thinking of resorting to Groupon as my savior, I need to re-think my marketing plan…”
Thanks for the great illustrations!
Paul
Tim says
June 4, 2012 at 6:18 amGreat post. It makes me wonder whether the sushi restaurant was already doing poorly before the Groupon offer. If your business fundamentals (income – expenses) aren’t sound, a discount program is not going to fix that in the long term. I have seen Groupon-style deals used successfully to help businesses get through a seasonal slump in cash flow. As long as the cash is mostly incremental (not cannibalizing future sales), there are times when running a promotion is cheaper than extending a line of credit.
I hope the old concept of building a customer base through discount programs, though, has been fully debunked. Coupon cutters are opportunistic shoppers, and should be approached (and priced) as a different segment from those who are willing to pay full price to support a brand or retailer.
Bill Carlson says
June 4, 2012 at 6:30 amI am in a rut. Whether it’s Facebook, Twitter, Groupon, QR Codes (remember them?), mobile or any of the continually-evolving digital marketing opportunities, my first thought is “all things in moderation.” To which I probably should add: “…and integration.”
Articles tend to focus on one of these tactics in a bit of a vacuum (e.g. Tom picked on Facebook last week and if memory serves, there was a cartoon about QR codes somewhere along the way) but none are “silver bullets”, at least not on their own.
To the point here, Groupon as a tool to create awareness and promote trial is no different than any form of couponing/discounting. There will be some who buy only for (because of) a deal but when it comes to Groupon, the question is “what do we do once they’ve been here?”
Groupon by itself will never be the key to a brand’s success. It’s all about the post-encounter strategies and tactics — how to target an audience who thought enough of an offer that they were willing to pay at least something for it. Some did it for the deal only but that’s a step in the right direction anyway!
Specific targets who you know experienced your products/services aren’t all going to come back but you can connect with them in a different, more personal fashion (i.e. leveraging the email address you now have).
Our (marketer’s) job is to take those “one-trial” customers and convert them over time. In the end, it’s about the math — what are you willing to pay (in the form of lost margin) to develop a targeted list of prospects, and what should you reasonably(!) expect in terms of results?
There are going to be differences depending on the product or service offered so this is of course a generalization, but at some level, true for all!
Reminds me of the old saw about lowering prices — “we’ll make it up in volume…”
Jennifer Nelson says
June 4, 2012 at 6:47 am“Instead of just dropping price to bring in new ones, give your current customers something to talk about.”
Such an important point, it bears repeating.
Davina K. Brewer says
June 6, 2012 at 11:31 amRestaurants are a perfect example of this; I often see them repeating services, moving to LS and Scoutmob or from one of those to Groupon. Then you see all the Yelp reviews “tried this place via a Groupon blah blah.. but it’d never be worth full price.”
One of the weakest parts of this deal mania: I’ve seen these deals and promos offered to ‘new’ customers – at the expense of existing ones; that’s the ultimate fail. And yes I’ve had to argue/fight to a redeem a deal; used it – then never returned to a business that obviously didn’t appreciate my loyalty. On the flip side, my local wine store did it ‘right’ so far as I can tell: a carefully planned deal, then much more DYI promotions to rewards the loyalty of customers, existing and new. FWIW.
Jeffrey Summers says
June 10, 2012 at 9:09 pmJennifer Nelson
June 4, 2012 at 6:47 am
“Instead of just dropping price to bring in new ones, give your current customers something to talk about.”
Such an important point, it bears repeating.
tomfishburne says
June 10, 2012 at 9:25 pmHi all,
Great banter last week, thanks! This week’s print goes to Bill. I really like the definition of the marketer’s job as taking “one-trial” customers and converting them over time. Many marketers focus on a tactic as a standalone, but the integration point is key.
Thanks!
-Tom