Warning: this post may not go down well with some of my #JFDI cohorts…. 🙂 It’s been a funny old week.
Too much pen to paper, not enough on the early morning juice (I missed every 5am alarm apart from today, which shouldn’t be a problem but it seems that some of my Twitter followers set their alarms by my wake up call) and a lot going on elsewhere.
One thing that kept coming up in conversation was a Groupon type site for Datasentiment as part of the product offering. A nice idea and actually very easy to copy and inititally an easy instant revenue generator. Then this morning I stopped because of two reasons. 1. I’ve already got four products that need my attention. 2. I’d pee off retailers in the long run.
First things first Datasentiment exists to promote customer loyalty to the retailer. Groupon doesn’t do that in reality. It promotes new customer generation and at the cost to the retailer. I appreciate at this present time you need sweetners to get customers through the door but for some the economics just don’t work out.
Okay, here’s a real example (I did some sums). The dance studio in New York has a deal on for 5 classes for for $39, reduced from $150. A saving of $111. Not bad at all. So far (at time of writing) 375 people have signed up for the offer which is great. I’m sure it would have taken some doing to generate $56,250 of revenue. The offer is on though so that’s now slashed down to $14,625 that’s been generated. For the customer it’s all well and good. Pay the money, print the voucher and boogie x 5 can ensue. For the retailer…. time to count the cost.
Firstly the fee to Groupon. Depending on where you read it’s 30% or 50%. For this exercise let’s go for the former. So 30% is $4387.50 leaving the retailer $10237.50, or $27.30 per customer. For the pedants in the audience (me mainly) you could go as far as saying that it costs $5.46 per customer per session. With this sort of deal there’s actually a good chance of retaining the customer, I think it’s a good fit. But these are few and far between. There are variables we don’t know, the cost of acquring the customer and then the cost of the product to the customer I’m sure would come to more than $5.46 per session.
I would also wager that the retailer is making no real profit, nor really gaining a new customer. The majority of users to Groupon aren’t brand loyal, they’re coupon loyal constantly on the hunt for a good deal. Fair enough, can’t complain with that.
This level of deep discount creates a dangerous starting point for a relationship with a customer though. There’s a ton of competitors now and I wondered about a more local version but I’d suffer the same problem. So I’m more bothered about maintaining long term value for customer and retailer, that’s what I’m about.
So the question remains, what about Groupon. Aggressive mapping out of territories, acquisitions and the like. A huge valuation and an awful lot of staff. Is it a case of a very bright shining star that will burn out brightly? Keeping in mind other high profile sites like Yelp are now planning the same.
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4 responses to “I was about to do a Groupon type thing but…..”
#JFDI is very specific in this regard. You gave it a go, that experience is not lost, and you did the sums. Just like Macheist, these schemes rely on this being a marketing expense rather than a realistic sale. I’d never have bought World of Goo if not for Macheist but my kids really enjoy it. I know that the producers got a fraction of the revenue but it’s questionable on whether they would have gotten that revenue at all. In your dance studio example, if they don’t fill the classes, they go out of business. Each class space, if not used, expires and disappears. Filling the class, even at a major discount, can be an effective marketing technique. It’s why so many places give the first class free!Only you can know what’s right for your company. And that goes for the dance studios out there too.
Matt, I totally respect your opinion on this. There are plus points and horror stories in regards to Groupon I’ve spent a lot of the evening reading up on them.If the retailer is looking for new customer base that it can then work on, then that’s cool. A new product that needs to grab attention (like with Macheist), then that’s cool too.But I do believe that retailers seriously need to think about the numbers before blindly dashing down the Groupon route to get sales. If retailers can clearly define their goals, understand the contract for Deal Of the Day, understand they’ll more than likely be paying for credit card processing fees (at 3%) as well as the 50% commission to the DoD vendor… and still think there’s profit then all well and good.There’s some mechanics worth looking at in regards to customer generation for DS but a plain copy site of this nature is not the way I want to go.Thanks for taking the time to comment Matt.
I’ve been watching Groupon with interest too and major sceptism. I get the whole ‘instant footfall driver’ thing but I’ve seen a few case studies where Groupon made around ??5k with the sale of the offer and in one instance – a beauty salon – they lost ??8k over the duration of the offer simply because the offer really was too good to be true so although they were busy – they were not making any money. Wages plus cost of materials alone never mind all the other costs of running a salon could really take a big dent in your bottom line. Smart business owners could make it work for them by restricting how the vouchers are redeemed so they busy up their non busy days or get rid of a batch of product at a knockdown price that they want rid off – but hopefully gain customers who will try their store or service and like what they see – but then if they’re thinking like this – they probably don’t need to use a service like Groupon. I’d also advise anyone who is giving it a go to check and double check their t’s and c’s as I heard of one hair salon who insisted with Groupon that the voucher could not be redeemed on Fridays or Saturdays but this was not included in the t’s and c’s on the voucher so the salon got booked out with people using their Groupon vouchers on the salons busiest days – major disaster! Invest in your marketing and your communications instead. A deal that’s too good to be true – usually is. ThanksKatrina
Hi Katrina, thanks for taking the time to comment. Groupon are heavy on the sell when it comes to the coupons and don’t like retailers to have much of a say when people can redeem their purchases. The purchase has already been made and the money taken (via Groupon’s merchant services) and it’s down to the retailer to make sure those services are fulfilled.For empty salons, well it’s one of the very reasons that uVoucher exists, to help them increase the chances of filling distressed stock. It makes sense to target the existing customer base and also try attract new ones. uVoucher gives subscribing retailers an iPhone app on the AppStore to maintain the brand proposition with their customers.I like the group buying ethic in principle but retailers do need to be very sharp on working out the bottom line and checking the T’s and C’s before moving forward.RegardsJase