Business owners don't think through their costs and how they are going to make money on the promotion. They don't recover it from customer behavior," he explains. Take for instance a massage therapist who complained that everyone who came in for his promotion got a massage and then walked out.
Most of them didn't spend anything beyond getting the freebie. He lost money on the promotion itself and there was no way to recoup that lost. Dholakia suggests that instead of promoting a particular service such as a massage or a facial, the owner should have promoted a particular dollar amount. This increases the chance that the consumer will come in and buy more than just one item. Now a newbie might come in to get a massage but then decide to get a facial as well. You have to prepare your staff to engage customers. You have to be careful how you structure the promotion," says Dholakia.
Groupon has its pros and cons, so, you need to decide if this is something worth your business getting into. Here are five reasons in favor of and five reasons against group buying promotions. It attracts a lot of consumers. You can reach new customers by appealing to those who are looking for inexpensive deals and a chance to save money. You get to charge lower prices to new customers who aren't willing to pay more. Existing customers are willing to pay full price for products or services.
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Dholakia says that Groupon promotions offer the most benefit for businesses in which the promotion does not cannibalize sales to existing customers. It advertises your business. A Groupon promotion can be a way to announce the existence of your business to consumers who are unfamiliar with your products or services. You get to entice potential customers to try your goods.
The idea is that they are going to like it so much that they will come back and buy from you again. You must make your promotion grab consumers but at the same time increase your potential conversion rate for repeat customers, says Dholakia. It helps move inventory.
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Use Groupon deals to sell slow moving items in your inventory or unutilized services. Discounts seem to be most compelling for merchants with low cost of goods sold. Use price deals to promote a product that is not that expensive. A Groupon type promotion should be something that you do once in a while for a specific, narrow, limited reason, adds Dholakia. It builds relationships. Use price promotion deals for building customer relationships rather than just creating one-time buys, recommends Dholakia. Don't offer discounts on a total bill, rather offer a specialized discount for various products or services.
It generates incremental revenue.
If you have a low-cost or fixed-cost structure, you can make money on promotions. Take an owner of a rock-climbing business that has existing equipment and a storefront. The operating costs don't change based on the number of people who show up. A coupon deal can actually generate some extra cash by getting more bodies into the facility. Dholakia says each merchant must know their costs, factor in a price that draws customers, project the number of costumers that will buy the coupon, and estimate incremental revenues.
Cons 1.
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Deals attract low-end bargain seekers. Because the Groupon customer base is made up of deal-seekers and bargain shoppers they might not be willing to purchase beyond the value of the coupon. So, there are low rates of spending and low rates of return. One problem with price deals is diminishing returns; thus, merchants need to put a cap on the number of deal coupons that are to be sold, says Dholakia.
Deals hurt the brand.
The obsession with price doesn't necessarily make for a lot of brand loyalty or even brand awareness. One negative aspect of daily deal sites is that price promotions usually hurt the brand of the company offering it, says Dholakia.
It makes customers price sensitive. When they get something at a much lower price, they then become less inclined to pay full price for that same product or service in the future. Deals don't generate repeat customers. Groupon has a low conversion rate for repeat customers, according to marketing experts. You may never see the person again once they use your coupon. Or that person may not be willing to buy from you again without a coupon in hand. The percent of new customers that redeem the voucher that becomes repeat visitors of the business is estimated at around 19 percent.
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