Photo: Dan Frommer, Business Insider
Groupon might seem like a great way to advertise your business and attract customers. If you don’t approach it the right way, however, it could end up costing you. Businesses use Groupon to reach out to the coupon service’s vast clientele. In order for businesses to benefit from the service and make a profit, there are steps to take and pitfalls to avoid.
First, it’s essential to promote a deal that a significant amount of customers will want to purchase. Furthermore, businesses should refrain from freely giving out discounts; don’t let everyone purchase any amount of your service they want, or you could end up like Oregon’s Posies Cafe — they lost more than $8,000 on a Groupon promotion.
A study by Rice University surveyed 150 small to mid-size businesses about their Groupon experience, and 32% reported that the promotion turned out to be unprofitable. Before you decide to take part in the Groupon discount bonanza, make sure you keep these worst-case scenarios, compiled by PC World, in mind:
Scenario 1. One-time Buyers
Customers could very easily make a purchase once and then never come back. Businesses need to sell more than the coupon is worth to make Groupon a good investment, so “hitters and quitters” won’t cut it.
Avoid this pitfall by preparing salespeople to sell products to Groupon customers aggressively. Another way is to use Groupon beyond the point of purchase. In other words, use Groupon to grow your distribution lists. Although Groupon cannot release the email addresses of their customers, businesses can gather this information themselves at checkout. Businesses can coax first-time customers into becoming second, third, and, hopefully, long-term customers with email blasts extending beyond the 24-hour promotion.
Scenario 2. Bad Branding Experiences
Make sure your Groupon coupon is appropriate for your company size. If you’re a small company, don’t send out too many coupons. One Chicago salon and spa, Bio, made this mistake. They sold 3,915 coupons in one month — more than they could handle — which resulted in a flood of negative Yelp reviews.
When planning a Groupon discount to offer, keep your product in mind. If you’re a high-end business, don’t offer discounts that give away too much. Otherwise, customers will continue to expect such sizable discounts for luxury services; businesses cannot consistently give those without devaluing their products.
Scenario 3. Too many customers!
Businesses use Groupon because they want to attract more customers, but they could end up with more customers than they know how to handle. To get ready for the extra traffic, prepare your schedule. As soon as your business releases its coupon, clear your calendar and have enough resources available. Your website will also get a flood of visitors, so put a cap on the number of coupons you sell — this is the merchant’s responsibility, not Groupon’s.
Scenario 4. Being outsmarted by Groupon users
The Groupon customer is craftier, more aggressive, and more resourceful than the average customer. Don’t let them outsmart you (i.e., reuse coupons or use multiple coupons). Stick to your company rules and policies. Also be aware of state laws concerning coupon use, expiration dates, and refunds.
For additional precaution, take advantage of Groupon’s redemption tracking services to keep a record of all the used coupons.
Scenario 5. Too many people redeeming coupons
Even though the point of Groupon is to give out coupons, the best case scenario is that customers will not actually redeem their purchase. That way you’ll have extra cash and branding, a win-win.
Between 60% and 80% of Groupon customers do follow up and use their coupons. What you should do to prepare for this is calculate what would happen if 100% – and not just 60 to 80% – of Groupon customers redeemed their coupons. Take into account the ratio of marginal costs to total revenue for a given period.
To learn more about the right way to use Groupon for your business, read the full PC World article at Entrepreneur.
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