4 Fatal Mistakes On Groupon Marketing

Groupon_logo-300x132Groupon is a huge success story.

In fact it was recently valued at $25 billion which is way too high in my books but I am not going to debate ‘valuation’ in this post… I will save that one for later 🙂

Today I want to get a little rant off my chest…

You see my wife Coralynn is an avid “Groupon Shopper” and over the past year she’s purchased numerous Groupons for restaurants, spas, auto detailing and retail discounts and the savings have been great except for one problem…

About 50% of the time we’ve redeemed a Groupon, the experience is terrible.

Almost every time we redeem a Groupon in a restaurant, we are faced with restrictions on when it can be redeemed and are constantly faced with unhappy staff that are none-to-pleased to see yet another ‘Groupon Customer’.

Groupons for retail stores have been the worst.

In fact a friend of mine went to redeem her Groupon at a retail store, and the owner of the store told her “She was robbing him and this would probably put him out of business!” and then proceeded to be so rude she will never return to said store again.

I know these experiences are not isolated because I’ve heard similar complaints from MANY Groupon users.

So what the heck is going on?

Well, first I need to point out this is NOT Groupon’s fault. Anytime we’ve called Groupon, they’ve been a pleasure to deal with.

Do they squeeze the merchants for as much value as possible. Yup.

Do they hold a gun to the merchant’s head and force them to sign-up? No!

The merchant made the decision to use Groupon but made a few fatal mistakes along the way.

If you are a merchant doing Groupon marketing, read this carefully…

Fatal Mistake #1: Not Knowing Customer Lifetime Value…

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If you’re going to make a deal where you give away half the gross sale price (and ALL of the profit in most cases) to get the customer through the door, you better know how much each customer spends with you on average. You also need to know what your net margin is on those customers over their lifetime. If you do NOT know these numbers and simply ‘guess’ you risk losing a ton of money!

This is a VERY common occurrence with retail operators using Groupon. They sell low margin products causing them to lose tons of money, and because most small retail shops are not ‘cash rich’, even if the customer comes back and buys in the future, they have to carry that loss for a very long time before it turns to a profit.

Fatal Mistake #2: Not Realizing Groupon Customers Are NOT Always The Best Customers…

Groupon buyers like bargains. They like discounts. They like to save money.

Now if you had to describe your perfect customer, are those the qualities you would list?

Probably not.

And more and more businesses are finding these are not great repeat customers either.

Fatal Mistake #3: Eliminating Any Chance Of Repeat Customers…

I get it. You made a mistake and this “Groupon deal” is sucking your business dry but you cannot just ‘turn it off’ – so make the best of it!

Do everything in your power to make sure these customers come back and buy again. Salvage what you can…

        • Get their email address so you can follow up and get them to come back.
        • Advertise a sale that brings them back into the store AFTER the Groupon expires.
        • Setup a loyalty program to incentivize repeat purchases.
        • Heck, at least be nice to them.

Fatal Mistake #4: No Plan To Extract Maximum Value…

Before you sign-up with Groupon to promote your business make sure you have a plan to extract as much value out of every single Groupon customer that walks through your door (or website).

        • If you run a restaurant make sure you feature your highest margin products on a special “Groupon Menu“.
        • If you have a retail store make sure you put together some special offers and packages that are high margin and extract extra value.
        • Make sure you have a well defined sales funnel to maximize the value of every single customer they send you.

The list could go on but I’ll stop there.

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The fact is Groupon is a great opportunity for many different businesses to drive lots of new customers fast but do NOT get caught up in the hype and excitement until you are sure it’s right for YOUR business.

Too many entrepreneurs are learning this the hard way.

I predict that in the future the number of industries using Groupon will decrease when they realize it does NOT work for their business model (think low margin retail operations) which brings me back to my opinion that they are overvalued… but I will save that for later.

Do you have any Groupon stories you want to share (Good or bad!)? Post them below… I would love to hear them!

Comments

  1. Siena

    What amazes me is how the groupon buyer can be so demanding and take no personal responsibility for their own mistakes, like arriving late for a groupon activity (thereby affecting the business and other participants), or waiting till the last second to reserve an activity date, then getting irate when there’s no room left. Many groupon buyers give themselves the bad reputation and are just cheapskates. They are not the customers most businesses need, and many groupon buyers ONLY buy with a groupon, so you’ll never get their repeat business at anything other than 50% off.

  2. Unfortunately after running any of these deals it takes a business many months to recover, especially if they are a small business. And some businesses go out of business after a 50% deal. This is a lose lose situation for the business owner. The only winners are the company running the deal and the consumer. Businesses should wake up and before signing the contract , do the math and see what they are really giving away. We need to stop this 50% off madness. It is taking down American businesses one store front at a time.

    • Derek

      I agree that 50% is VERY rich and that is going to have to change… and I know it will. Once all of the hype dies down and the Groupon/LivingSocial industry matures their margins will be squeezed. But right now it is up to the merchants to make sure they’re not jumping into a bad deal… but even at 50% there are lots of businesses that are making money! So the Groupon model is here to stay… it just needs a little fine tuning to say the least.

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