Tuesday, 6 December 2011

Groupon – is it fair - will it work for you?

The UK Office of Fair Trading has announced that its launching an investigation into the selling practices of Groupon, normally I wouldn't pay much attention but coincidentally, just a few days earlier, I prepared a report for a company I’m involved with about using Groupon to sell certain financial products.


I'm very pleased to say I advised against it (so the news makes me look really good), but at the same time, I do find the news a bit one sided.


So this is what I said in my report;


"Groupon artificially controls the supply side by limiting the number of ads. There isn’t a fixed price to place the ads; you negotiate it individually with the sales rep. However what they will generally require, is that you first discount your regular price substantially and then you pay them a large chunk of the sales. Like Adwords, Groupon selects the ads based on an auction, what will make them the most money, and since supply is limited, competition for the slots can be fierce. I think it is unlikely they will take us, but if they do expect a major loss on the campaign.  In general my feeling is that Groupon is a marketing tool, it is for people willing to take a loss (or have a very wide margin) on selling products with the longer term objective of turning them into regular repeat customers. Our customers would generally not be frequent repeat customers and I would therefore suggest that this approach won’t be suitable for us."


I think blaming Groupon for the incompetent business decisions of advertisers is a bit rich (I.e. “I lost a lot of money selling my product cheaply on Groupon”). As a business owner you are, I believe, responsible for understanding the basic fundamentals of business, if you sell something for less than it costs to make, you will lose money, you can’t blame anyone but yourself. However you can perhaps discuss if Groupon is worth it. Does it benefit your business, does it benefit the consumer? I suppose the latter is easier to answer, if the consumer gets a bargain and the companies selling through Groupon are able to fulfil the order with a satisfactory service level, then it’s good for the consumer. If not then Groupon will need to tighten up on the kind of companies they allow in. I would argue that a lot of the small shops are overwhelmed with the order quantities and that benefits no one.


I think in general something like Groupon is for companies that have a very good plan for how they plan to convert these bargain hunters into repeat customers. Trouble is that many mom and pop shops signs up to Groupon without understanding magnitude of their potential losses and has an unrealistic belief that these many of these customers will become regulars and, of course, they won’t.


If I was selling Polaroid Cameras, games consoles or anything else where the consumables are proprietary products as well, then I would be the first to sell on Groupon. For anything else I would be a lot more careful. Ask yourself if, after they have redeemed their 70% off voucher, they are likely to come back to your 5* restaurant? I propose that for many businesses you can find better and more targeted advertising channels that will generate more sticky customers and more recurring income, but that doesn’t mean Groupon can’t also be an excellent channel for some, but it is your responsibility as business owner or sales marketing/marketing practitioner to properly think it through.   

4 comments:

  1. Groupon is great for trying things that are otherwise too expensive, but, by that very criterion, one is not a repeat consumer.

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  2. So true. What started all of this was some lady sold 102000 cupcakes and made a loss of £12500. Kinda her own fault, and no, not too many repeats. One must wonder why the OFT care about consumers getting a "too good deal". Strange.

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  3. so, as a consumer, am I really harming the mom-and-pops that sell $1 for $.30?

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  4. @ Anonymous Yes that would be often be the case. If you dont come back some other day and pay the full price, then they are likely losing money on you.

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