Do Merchants Benefit With Groupon?

Groupon and others such as Get My Perks have enjoyed a lot of popularity especially with cost conscious consumers over the last decade. Certainly, everyone loves to save money on restaurants, amusement activities and other retail stores. But how do these deep discount deals affect the merchant behind the offer? It depends. 

Benefits of Groupon Offers

1. Customers love them. Groupon offers attract new customers to you by appealing to bargain shoppers who are willing to pay but want to save money at the same time. Groupon promitions can be a benefit as long as the promotion does not sacrifice sales to existing customers, who are willing to pay full price for your products or services. It’s important to make these promotions a part of your overall marketing plan, side-by-side with your Google Adwords, Facebook, Twitter, Instagram and other social media platforms.

2. Offers build business awareness. Using Groupon lets consumers learn about your business and attract new people to your products and services.  Hopefully they’ll be so impressed with your offerings at 50% off that they will return without the discount. The key here is to attract new people as well as increase your conversion rate for repeat visits.

3. Move slow-selling inventory. You might use a Groupon deal to move slow selling products or promote little-known services. Discounts such as these seem to be most successful for merchants with a low cost of goods sold. Use a bargain price deal for a product or service that isn’t very pricey to you.

 

4. Build relationships with customers. Rather than offering a one-time buy, make the offer a sequence of buys: $20 worth of product for $10 times three visits, rather than $60 worth for $30. Same value but it builds the habit of coming to your business on multiple occasions. Or offer discounts on specific products and services rather than on the total bill or invoice. Keep them coming back for more!

5. Generate additional revenue. If your business has a fixed cost structure, promotions can help you make more money by attracting more people than you would usually have. For example, a miniature golf course business. The owner’s operating costs don’t change much based on the number of customers using the course. Setting up a coupon promotion brings in extra cash by getting more people to come play mini-golf. Customers pay $10 for three rounds (rather than $15) and the owner still makes a profit. It’s imperative for this to work that you know your costs and can set a coupon price to attract customers and stay profitable.

Disadvantages of Groupon Offers

1. Deals bring out bargain shoppers. Since Groupon’s whole premise is low cost, the customer base is in the habit of only looking for bargains and may not be willing to purchase without the deep-discount coupon as incentive. Therefore, you may see low levels of spending with commensure low rate of return. To counteract this, put an upper cap on the number of coupon deals you are willing to sell at the reduced price.

2. Deals can tarnish your brand. People preoccupied with price aren’t buying what you’re selling for brand. And they’re not ikely to stick with you for because of your brand either. When people get a brand at a deep discount one time, they are much less willing to pay full price in the future.

 

3. Deals don’t encourage repeat customers. Historically, Groupon deals have a low rate of conversion for repeat customers, roughly 20 percent of customers will return, depending on the product or service. You may never see that customer again unless they have another coupon.

4. Deep discounting is not profitable for a merchant. Groupon keeps 50% of the sales revenue from each promotion. This means you need to gross a margin in excess of 50% to make Groupon work for you. If a business is built on a 75% margin and customers merely visit and get the Groupon deal, the merchant loses money. You must be able to offer a typical deep discount, pay 50% to Groupon and still make something from the deal for it to be reasonable.

5. Look for better deals. Daily deals, like Groupon coupons, are not the only game you’ll find. You can easily run a similar promotion such as a discount on your business Facebook page, Instagram or through Twitter. Cheaper, better returns and you’re not giving away 50% off the top. 

Discount doom? 
Not necessarily but you must be very careful with Groupon-type promotions. There are many ways to get creative and attract new customers. Want to know more? Contact Mike Krause at Sales Sense Payments for some targeted brainstorming to help you promote your business and not give away your profits!

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Mike Krause
Sales Sense Payments
585-704-6453
mike@salessensepayments.com
Please visit SalesSensePayments.com for more information.