(This column first appeared on RIMOFTHEWORLD.net on October 23, 2011.)
I love spending time with our daughters and their boyfriends and friends and our granddaughter. But I must admit that, on Sunday afternoons, after a weekend of preparing meals, cleaning, chauffeuring and entertaining, when I assess our checking account balance, gas tank and the condition of our home, I feel a little like a farmer surveying crop damage following a locust swarm.
One of my clients described his recent social coupon experience in much the same way. The owner of a domestic referral agency based in LaVerne, he experimented with Groupon by offering discounted housekeeping services in the Inland Empire. And, as social coupon redeemers so often do, they signed up en masse for housecleaning, drained him and his staff of their time and resources and then fled to the next available online coupon opportunity.
He is hardly alone. In 2010, the owner of a bakery and café in Portland, Oregon called Posies wrote a now infamous blog post recounting her own similar experience:
“(Using Groupon) was the single worst decision I have ever made as a business owner thus far,” she wrote, also revealing she lost $8,000 as well as the good will of many of her existing customers because of the flood of Groupon users and the exorbitant percentage required by the service provider.
How can this be? After all, theoretically, group coupons supposedly benefit everyone—the site, consumer and the business owner. Consumers are said to benefit from lower prices by way of collective bargaining. The business is supposed to gain new patrons. And the site gets a cut from all of the sales. Win/win, right? Not so fast.
I realize that there are slight differences between the many social coupon services. So please allow me to generalize in order to explain the social-couponing process:
- The business owner works with social coupon site representatives to craft a great deal.
- The sales associate recommends offering a product or service “at least a 50% off” to generate rabid consumer interest.
- The business owner agrees to not only deeply discount his or her product or service for the offering but also to pay the coupon site 50% of the final take. (In other words, business owners who offer specials on social coupon sites are usually agreeing to do business at approximately 25% their usual rate.)
- The social coupon site emails the world and posts announcements to promote the deal.
- Consumers pay the coupon site and rush to redeem the special.
- The entrepreneur struggles to meet demand.
- Rinse and repeat.
Groupon is arguably the best known in the business, having been declared by Forbes as: “the fastest growing company ever.” But it is certainly not the only company or even the first to come up with the concept of providing coupon savings to groups of people who purchase discount tickets for products and services in advance. Here are a handful of similar sites:
BuyWithMe (which has recently absorbed several direct competitors)
GoogleOffers (coming soon)
LivingSocial (a major player)
I believe the ones who benefit most from group coupon sites are the sites themselves, evidenced by the fact that new ones pop up each day. I will admit there is one exception to the rule. If you purchased 9 million more American Idol figurines that you want to unload, you might benefit from selling them through an online coupon site. Otherwise, you’re probably better off to avoid the platform altogether. Although I don’t normally share my personal prejudices about marketing tools, in this case, I feel compelled:
- Group coupons destroy profitability within various markets
Once you run a 50% off campaign in your local area in your industry, you will be hard-pressed to get anyone in your sector to return to previous pricing levels. So, if you are comfortable operating at 25% of your current asking prices, then just drop your fees and leave online coupon companies out of the mix entirely.
Otherwise, in effect, you destroy profitability not just for yourself, but for everyone in your field. According to a recent study of Groupon, only 25% of redeemers buy additional products beyond the ones offered through the coupon and only 15% of coupon users come back.
- Over time, discounts will erode service levels and undermine customer satisfaction
Even if you can withstand a one-time coupon offer where you collect just 25% of what you normally receive, sustained couponing will ultimately eat into profitability and compromise service levels. With poor service, customer satisfaction will likely decline and you could stand to lose not only unprofitable coupon users, but all of your clients.
- You stand to destroy customer loyalty—
Offering one-time customers the best deals rewards them instead of your existing clientele. Instead, why not tender loyalty incentives to keep good clients coming back? Besides, do you really want to be known as the cheapest game in town? Is that the best you have to offer?
Instead of focusing on price alone, provide superior customer service and build a reputation based on trust, loyalty and the uniqueness of your brand. If you go that route, you’ll generate plenty of buzz without having to resort to online coupon sites. And that should keep locust swarms and crop damage to a minimum.
Until next time, I’ll be Bowling for Business.