Monday, April 18, 2011

Making the Most of Groupon, Living Social, and Other Group Discount Programs

Many business owners wonder how they should manage discount offers. If we only discount deeply for new customers and clients, we risk losing existing patrons. If our best discounts go to our loyal advocates, we may pass opportunities to bring in new business. And, in the end, is it good to create a client base of discount-minded buyers? As with most topics I address, the answer is, “Maybe.”

It all depends on two factors: our business model, and our retention systems.

Take a discount pizza chain as an example. Most of these establishments have business models based on ongoing discount campaigns. It’s the way the business was meant to operate and can run profitably with a large percentage of patrons using discounts. Other business models only allow for a small percentage of transactions to be made at a discount without digging into planned profits.

A fast-growing approach to discounting is the use of programs like those offered by Groupon, Living Social, and other such group discount sites. Are they worthwhile? Again, maybe.

Before getting overly excited about having hundreds of people taking advantage of our offer, we need to make a few considerations:

:: Can we handle the volume, or will we just upset a large group of would-be clients while inconveniencing those we already serve?

:: If the offer needs to be significantly restricted to be doable (e.g. blackout days, limited number of redemptions per day/week/month, limits on products or services that can be purchased, etc.), do we risk misunderstandings that stress prospects and our own staff?

:: Do we have a plan in place to transform these bargain hunters into ongoing clients if our business model is not overtly discount-based?

In addition to these basic considerations, remember that when using these services, we’re discounting costs already, then splitting the reduced revenue with a third party. Being able to figure out whether this makes sense for our business shouldn’t be a guessing game. What is our current Client Acquisition Cost (CAC)? Run a few numbers and see if such a discount approach is in line with other paid advertising activities. We may find group discounting represents a good investment, and we may find we can do better with other approaches. Knowing these numbers in advance will help keep us from misstepping.

Even when the initial process of bringing a first-time buyer through our doors is cost effective using these services, we mustn’t forget the importance of keeping that newfound client active. An effective, functioning loyalty system is a must prior to engaging in any such prospecting activities. Whether new business comes to us through paid advertising, low-cost publicity or social media, or contingency programs in which we only pay for results, we want to capture and keep those customers.

So here’s my answer as to whether group discount programs are worthwhile:

:: Do you capture, manage and use data on your customers or clients to keep them active?

:: Does your business model allow for discounts of up to 75% as your investment for gaining a first-time buyer?

:: Do you have opportunities to increase first ticket sales with products or services above and beyond the discount without making your new client feel like a second-class citizen for having used a coupon?

:: Will the use of the coupon offer put restrictions on the prospect that make his or her first experience different from future experiences as a “regular” client?

:: Will you be able to bring back these first-time patrons and build a rapport with them that is in keeping with your existing model?

If the answer to all five questions is yes, group discounting may be a viable for your business. It may warrant a carefully crafted test. If there are ‘no’ answers in your responses, consider all angles of this approach carefully before taking the leap.

Whatever we do to grow our businesses, we want to create consistently positive experiences for our employees, prospects, and clients. Here’s a 3-minute news story video that brings up some of the potholes you may encounter. It’s worth watching if you’ve considered using group discounting as a means of building your business: Groupon Pros and Cons News Story

I’m not saying group discounting is inherently good or bad. It makes great sense for many businesses, and can be the destruction of others. If we follow the steps leading to making informed decisions about how we will share our message with our audience, we’ll more consistently engage those vehicles that bring expected returns while avoiding those that will damage our efforts.

Gather your team and discuss your specific situation. That’s why they are there.

Here’s to your marketing success!

Bryan Waldon Pope

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