Groupon is a deals and vouchers website which offers customers discounts on services, items and experiences via discount vouchers and codes, vouchers for restaurants, for driving experiences and cleaning services. For many new businesses, the first aim is to get new customers through the door. However, Groupon has presented some businesses with an entirely different problem: what happens when you get too many customers?
Groupon as a Business Investment
Groupon can be a terrific investment for many businesses. Customers are drawn to a brand over others because a good deal is being offered, and the aim is that after they use a product or service, customers will return and pay full price. It seems there are limits to this idea however.
For instance, a UK baker was forced to cake 102,000 cupcakes after she offered 75% off her regular price. A massive 8,500 people signed up for the deal, and Rachel Brown, owner of Need a Cake bakery in Woodley, UK, was forced to hire extra workers to keep up with the increasing amount of customers. While a sudden rush of business would be great for many companies, Rachel had to deal with a loss of £12,500 from the deal.
With this risk, and the concern that customers won’t come back to pay full price, why are so many companies signing up for Groupon again and again? For many businesses, Groupon does make perfect sense. For example, if people are not aware of a business Groupon offers a reach of millions of potential customers. If you are able to turn these into repeat customers, the profit will be made up in the long term. Similarly, if your company has a large advertising and marketing budget, such as Gap who featured a deal in 2011, then the profit will be absorbed by this budget, and it will have aided in advertising efforts.
Groupon as a Form of Advertising
Ultimately, many businesses are looking at Groupon as a form of advertising; deciding between the site and running a commercial or another form of online advertising. The reason customers choose Groupon is because of their high success rate of getting repeat customers through the door with no upfront cost, and the total cost per customer being lower than other forms of local advertising. If a company has a great business, the customers should come back again and again. Groupons aim is to get them interested in the first instance.
It is also important to note that Groupon has always had a policy to allow merchants to cap deals. If a merchant sells more Groupon deals than they have the resources for, not only will the merchant have a bad experience, but so will the customer, which reflects very badly on Groupon. Therefore, it is important to merchants to use a cap on their deals, this way they can receive a healthy amount of customers without being stretched beyond their means.
Additionally, they are now offering Groupon Now! , which allows users to take advantage of a deal right immediately, therefore limiting the risk to the company by only offering the deal for a maximum of one day.
The important point to remember is that Groupon may not be right for every business, so make your decision wisely. Consider whether you should have a cap on the number of vouchers you are offering. Would you benefit more from a Groupon Now! service? Or, would your company would do better with a more traditional form of advertising which has less of a risk factor. Do you research thoroughly and choose your options carefully.
What about you? Do you get your Group-on? 😉