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Should Your Small Business Do A Groupon?

March 22nd, 2011 by Emira · 4 Comments

I had the great pleasure of speaking to a conference of yarn shop owners last week in Portland, at the annual Yarn Market News Small Business Conference, and one of the topics that came  up in our discussion was whether or not other yarn shop owners should do groupons (which I use here as a term to stand in for any of the many social buying programs out there these days). I had been thinking a lot about that very question lately as I’ve had a number of small businesses either share their experiences, (both good and bad), with me or ask if I thought it was a good marketing strategy for them. The short answer: no one marketing strategy, social coupons included is a good fit for every business. So how do you figure out if it’s a good fit for you?

First, arm yourself with knowledge about the downside of social coupons. The owner of Posie’s Cafe, a lovely little spot which happens to be in Portland, recently wrote a very honest blog post about her experience, which I’d highly recommend reading, so you can learn from some of her mistakes. Generally what are the not-so-swell parts of social coupons you need to be aware of:

  • You can’t only target first time customers. Your existing customers will take advantage of a coupon and when you look at most coupons offering a discount in the order of 50% that is not the kind of deal you’d typically offer to existing customers.
  • In some cases — and this varies from program to program — you can’t limit the number sold. Some businesses simply can not handle the volume of sales that they get or the final cost to their business when they total up the number sold.
  • The cost is pretty high. If you do a 50% off deal, (and these are what seem to both work best and are what most social coupon companies will encourage you to do), whereby you’re say offering $20 worth of product or services for $10, you will not see the full $10, as fees will be taken off that. So, depending your cost of goods, you’ll likely be offering product at a cost to you. Now, that cost is effectively becoming a marketing cost, but for some small businesses keeping stock to honour the coupons, while also serving your existing customers, can be crippling.
  • You may not get the kinds of new customers you really want. I’ve heard a lot of businesses talk a very high percentage of coupon purchasers being people who are out for a deal, not people who really value the product or services of that business. Add this to your existing customers taking the deal and the number of solid new customers you acquire through this marketing cost goes down considerably.

So, those are some of the pitfalls. Knowing them can help you craft ways of participating in a social coupon that will serve you better. The focus I’d encourage putting on how you craft your social coupon: less uptake, but more quality uptake. So what do I mean by that?

Well one yarn store owner at the conference I spoke at had done one of these programs very successfully through carefully crafting her offering. Instead of offering just 50% off product — which is what most of the people in the room who had participated in one of these programs, and regretted it had done — she offered 50% off a beginners knitting class. Brilliant. By doing this, she was more likely to get new customers, experienced knitters who already patronized her store wouldn’t want to take a class, and those customers would be more likely to become repeat customers as she was introducing them to a new craft that required materials found in her store. She also required that participants in the class use yarn purchased at her store (she offered a discount on those yarn purchases as well), so that people weren’t able to bring yarn from elsewhere. Her final numbers were lower than they would have been if she offered a flat 50% off products from her store, but the kinds of customers she brought in were of much higher quality. And, she also got to expose her store to all those signed up to receive the coupon offers, which meant that experienced knitters on the list may not have chosen to take advantage of the offer, but were perhaps introduced to her store for the first time.

The basic lesson here: quality over quantity. While social coupons are all about quantity by definition,  there are ways to gear them to quality for your business.

One final piece of advice? Negotiate with the company you’re working with, if you do a social coupon. They’ll offer you a certain fee structure off the top, ask for a better rate reminding them that you are a small business. It may work, it may not, but there’s no harm in asking and it will in the end lower the cost to your small business.

Tags: Business Advice

4 responses so far ↓

  • 1 Lisa Gerber // Mar 25, 2011 at 5:44 am

    Hi Emira,
    What a great example of doing Groupon well. The class doesn’t represent a hard cost, just her time, and getting people into the hobby get them hooked and there you have your return customer, overcoming a number of the pitfalls you describe. Love it. A great example.

  • 2 Howie at Sky Pulse Media // Mar 25, 2011 at 5:53 am

    I have a client who is participating in the launch for a Social Coupon Do Good Non-Profit in Los Angeles. If these take off I would say do them vs Groupon or Living Social etc. Reach is the hard part since the for profit have reach.

    But the way it worked was the buyer chose a $5, $10 or $25 reward. All that money with to a charity. They then got a coupon for something. In my clients case two for one gourmet ice cream sandwich normally costing $4.75 each.

    The good part about this is the business gets the money up front. When a coupon is redeemed 2 for 1 my client gets $4.75. There is zero commissions. Zero escrow. No waiting to get your money.

    http://healla.com/

    BTW @LisaGerber sent me

  • 3 trish tacoma // Mar 27, 2011 at 11:55 am

    What a timely piece. Groupon contacted us last week and made it sound like a win win situation. Thanks for a great article.
    Trish

  • 4 Charlie W // Jun 6, 2011 at 2:36 pm

    My first and so far only Groupon purchase was for a Yoga studio in Yaletown. It seemed too good to be true………one month of unlimited Yoga for the cost of what I would pay for just 2 drop-in classes.

    All I had to do was to was attend 3 classes in the month and I had got my money back.

    This seemed like an absolute bargain compared to what I would have to pay if I paid the regular amount for a one month unlimited membership.

    Trouble is that everyone else felt that way too!

    The Yoga studio was crammed. The teachers seemed to spend the first part of each class, getting everyone to move theri mats as close as possible to each other in order to fit more people in.

    You had to turn up way before the class start time to secure a place or else you were turned away. Not fun for anyone, but even more frustrating for me as I was having to fit in my young daughter’s bedtime routine before I could leave home which put me on an even tighter schedule than most.

    The changing rooms, showers and toilets couldn’t cope with this sudden jump in numbers, and were constantly over capacity.

    It seemed the point of a Yoga class was being lost in the effort and stress it was taking to participate.

    I know I had got a month’s membership for cheap, but I had still paid money.

    I tried politely complaining to the studio staff and manager about their capacity issue but their attitude was shocking. They just kept telling me that I had saved so many dollars and hence had no right to complain. They actually told me that they didn’t care about my complaint and I should take it up with Groupon who would refund me.

    This Yoga studio seem to have shot themselves in the foot with their Groupon.

    I understand that there is little they can do about the capacity issue, but their attitude and how they handled the complaints was something they could have done something about.

    As a consumer I feel really sorry for the other members who are experiencing the over capacity issues and yet have paid full price for the priviledge.

    I wouldn’t be surprised if they actually lost customers based on their experience.