In one of my other businesses I occasionally receive phone calls from daily deals sites, the most well known of which is the international giant, Groupon.
At first glance it seems like they offer an attractive service, but look a little deeper and bit-by-bit some of the positives seem to be overshadowed by the reality of how it may work for your business. These type of promotions can benefit many businesses, but it’s always wise to make sure it looks like it will be good for yours.
So, let’s get practical. Let’s take the example of Ruth, who is a massage therapist. Ruth wants to establish her business in her local city, and Groupon offer to send her at least 200 customers. Wow! That sounds attractive. 200 new customers is sure to boost her business.
It may keep her busy, but will it boost her business? Let’s find out…
Her normal charge for a massage is £40. Groupon want their customers to get a good discount, so let’s assume she gives them 50% off. So every customer is paying Groupon £20 for a massage with Ruth.
Now, Groupon will take 50% of that, so Ruth is left with £10 per customer.
So, the day of the promotion comes around and Ruth’s campaign is a success and 200 people sign up. Groupon are payed 200 x £20 = £4000. Ruth gets? Well, nothing right now. But straight away her telephone is ringing and people are trying to redeem their vouchers.
She is soon full, and it looks like it will be a very busy three months as she tries to massage all of the new people, as well as keep her regulars happy.
However, of the 200 who buy the vouchers, only 70% actually end up coming for a massage, which makes it easier for Ruth’s aching arms and fingers, but not so good for her bank account.
The reason for this is that Ruth only gets paid for the vouchers she collects and sends back to Groupon, not on the purchases. So with a 70% redemption, Ruth has 140 actual customers. Once she has kept the vouchers after three months of giving massages she sends them to Groupon and gets 140x£10 = £1,400.
Hang on? Let’s look at those numbers again. On the day of the promotion £4000 worth of vouchers were purchased, yet after 3 months of hard work, Ruth only gets £1,400. Now there is nothing dishonest in this, as all of the terms and conditions are clearly spelled out at the beginning. But is this the best option for a local business owner?
Another point is that of the 200 that bought vouchers, Ruth has none of their details, so she cannot get in touch with them to let them know about her wonderful service. Their emails addresses etc are held by the voucher provider, and they can send them emails about other cheap massage deals from Ruth’s competitors.
In Ruth’s case it is essential that she have a mechanism in place to get the details of the 140 who do arrive so she can continue to try and sell her services to them.
Often business owners think that by going for a daily deal voucher they can build brand loyalty, but the experience of a number of owners is that those customers are loyal to Groupon, not to you. Some of those customers are chasing bargain deals, and are not interested in the full price service.
So, what is to be done? Well, let’s look at Ruth. Ruth did 140 massages which should have netted her 140x£40=£5,600, yet she only received £1,400. In effect she spent £4,200 and at least 140 hours of her time, on marketing to build someone else’s business. Groupon may seem like a low cost, no-risk option at first glance, but just look at those numbers.
Much better for Ruth would have been for her to have her own local marketing campaign where she built her list, and benefited totally. Even if she had given a 50% discount on the initial massage she would have received £20, rather than £10, and more importantly she would have built a database of customers who she could use SMS and email marketing with, to generate future sales and increase referrals.
Worth thinking about, don’t you think?
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Further Reading: Check out this article from the Daily Mail