The Misuse of Groupons

“Yeah, I tried that, it didn’t work for me.”  Ever heard a business owner say this?  Ever say it yourself?

Ever suspect that in some cases, it’s the fault of the business owner not applying it properly, and in others, it’s the fault of a ridiculous idea/system/tactic/strategy that the poor business owner got rooked into?

Even if not, I hope you’ll get something out of today’s post.  I want to talk about how even great ideas can lead businesses astray if they’re not carefully tied into good strategic practices.  To do this, we’re going to take a look at Groupon, which has people split right down the middle (some call it the savior of the small business, others say that it ultimately costs far, far more than it’s worth in time, effort, energy and money).

Let’s make no mistake though – by and large, businesses seem to love Groupons.  The expected $10 billion “that’s billion with a B” valuation suggests that businesses can’t line up quickly enough to participate.

Bargain hunters love Groupon.  One of the features of Groupons that almost everybody forgets is that they operate under what is called an assurance contract – the deal is only valid if a predetermined number of people subscribe to it over a 24 hour period.  This number is usually reached within minutes of the deal being sent out. There are no shortage of people who love getting things at a 50%+ discount.

On the other hand, many businesses who have used Groupon are left unsatisfied with the results.  A search for “Groupon Sucks” yields over 750,000 results, with the #1 place at the time of this writing being an article in PC World entitled “Why Groupon Sucks for Small Businesses.”

So which side has the right of it?  Is it the case that there are at least $10,000,000,000 reasons to love Groupon?  Or does it, in fact, suck?

Like most things in life, the answer is a little of both.

When deciding whether Groupon is a good idea or not for your business, it’s helpful to step back for a second and answer a very simple question:  What is Groupon designed to do?

It’s not a trick question, the answer is obvious.  Groupon is a service that promises to drive hoards of people through your doors.  Many of these people are “new”, in that they have never patronized your business before, and a smaller amount probably would never have come in without the Groupon.

In fact, Groupon fulfills the fantasy of every short-sighted business owner who’s ever wistfully sighed “If only I could get more new clients/customers, I’d be set!”

Okay, time for a second question:  What is Groupon not designed to do?  Again, the answer is simple.  Groupon is not designed to do anything to help you keep these new clients/customers.  Once the people are in the door, it’s your job to keep them.

The fundamental misunderstanding of the purpose of Groupon is, I believe, the source of the rancor and dislike of the company by those businesses who get burned (and let’s not kid ourselves, there are plenty of them).   It’s not because Groupon doesn’t live up to its promise, but in many cases because it goes so far over and above in bringing new clients/customers in.[1]

Let me be absolutely clear here:  Unless you have a strategy to convert these new customers into long term clients, you are shooting yourself in the foot by participating in a Groupon.  It is Groupon’s job to bring them in the door.  It is your job (and your job alone) to convert them.

If you do have a strategy lined out to convert the new customers, then the Groupon will probably bring you the highest rate of return of any investment you make all year.

Whenever I see a business that participates in a Groupon and doesn’t collect any contact information when people turn them in, I cry a little bit inside.  Because I know what’s happening – the business is giving away their product/service for about 25% of what they’d normally get for it (50% off, and the other 50% split with Groupon), and in all likelihood they’ll never see this person again.  They’re not adding them to a marketing list, they’re not doing much to explain the benefits of continued use of their product/service, and in many cases, they’re too busy to even attempt  to start building a relationship.

If you’re a small business considering running a Groupon, it can be incredibly beneficial to you to do so, but only if you go into it with the right strategy and expectations.  Expect that you’ll get a huge turnout.  Expect that there will be plenty of bargain hunters who will never come back.  Ask yourself if you can demonstrate sufficient value to encourage people to keep coming back at full price.  Ask yourself what your new customer retention plan is, and how it will work with Groupon users.  After doing that, you’ll be in a much better position to evaluate the merits of the service for your particular business, I promise you.

And, of course, that advice isn’t specific to Groupons. Any time you embark on a path that you expect will bring you new clients/customers, you need to have your retention strategies in place and humming along smoothly, otherwise they’ll just leak right out of your bucket.


[1] Observant readers may wonder why I’m using the term customer, after making a full post the other day about how we should think in terms of clients rather than customers.  It’s a deliberate choice for this post, reflecting the fact that it’s impossible to consider a one-time bargain hunter as a ‘client’ given the definition we discussed earlier.  These one-timers are strictly transactional, and hence they’re customers.

  • Noah Fleming

    I’ve seen it over and over and over again. Exactly what you’re saying. It’s funny – because a few of my clients have been able to use groupon to truly take things up a notch. Of course, it’s ALL about the systems we had in place from the beginning.

    Great stuff.

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