Groupon

[Indivijewelistic]

Hi, I own IndiviJewelistic Bead Shop and Jewellery School. I was approached by Groupon some months ago about running a campaign with them. Initially I said no because it would be at a cost to me, but I notice that one of my competitors has taken up the offer. Obviously I cannot go directly to them and ask how the campaign went, but I am wondering if others on here have any feedback, suggestions, helpful advice etc?

For me to do a deal with Groupon I would be out of pocket c.£10.00 per person per class, but is it worth it for the advertising alone normally I would spend c.£180.00 a month on advertising, but that advertising is in Jewellery Making magazines and so hits my target market well? Further does it really bring repeat business, or do people simply take advantage of the offer and then not return?

I am very competitively priced against my competitors already so this information will be very useful to me and thanks in advance to anyone who is able to assist.

Cheers
Trish

 

[Stuart Bailey]

Trish please take a look at an article I wrote a few months ago.

best wishes Stuart

http://www.thomasguise.co.uk/?page_ID=25&news_ID=65

 

[Indivijewelistic]

Thanks Stuart, this is exactly what I thought I just wanted someone to confirm it to me.

 

[TheBigCheese]

I've heard lots about Groupon, mostly on here and I don't think any of it was positive!

 

[JamiePMortimer]

Nice blog post, Stuart. I'd echo the negativites of it. The biggest I've seen was the famous cupcake incident: http://www.telegraph.co.uk/finance/...pon-demand-almost-finishes-cupcake-maker.html

 

[Talay]

I spoke to them to get an idea of where the starting numbers were.

Essentially, they want to see at least a 50% discount from you and they want 50% of the proceeds they receive from sales of your promotion. Obviously you could negotiate this down and I have a friend in the restaurant business who is placing business at less than 30% commission.

I haven't moved forward from that point but I did hear about one agent being very reticent with payment and wanting to spread it out in tranches, presumably expecting quite a number of refunds !

 

[Indivijewelistic]

I am hearing exactly the same thing on the UK craft forum. That it doesn't drive up sales or earn repeat custom, companies struggle to cope with the volume and therefore often get poor feedback on customer service.

I was given exactly the same info 50% discount and then 50% of those profits.

All the advice points towards leaving them alone.

Thanks to everyone.

 

[Talay]

I am hearing exactly the same thing on the UK craft forum. That it doesn't drive up sales or earn repeat custom, companies struggle to cope with the volume and therefore often get poor feedback on customer service.

I was given exactly the same info 50% discount and then 50% of those profits.

All the advice points towards leaving them alone.

Thanks to everyone.

I think it needs some thought but I would not necessarily dismiss it out of hand.

For instance, I get local offers in my inbox each morning. Over a cuppa I tend to browse them and very occasionally buy something, just as I get UKhotdeals latest "bargains".

Obviously if you have thin margins it doesn't work but performing a service where you routinely give half decent discounts in any case can work if you understand the mathematics and perhaps negotiate a more favourable income split.

If you are not sure though, best to stay away, as you suggest.

 

[a.mart]

I was given exactly the same info 50% discount and then 50% of those profits.

50% of the profits?? That's absolute madness. I wonder if there are any succes stories around, anyone getting their business growing with this? Perhaps if you are just entering the market with a product that needs plenty of promotion and that no-one else is offering...? I mean it can't all be bad, or groupon wouldnt still be around... right?

 

[DavidAshdown]

I've heard horror stories too. 40% of takings, (after discount) and if you don't supply you are penalised even if its out of your control.

 

[Indivijewelistic]

Yeah, I have been hearing more and more of the horror stories. But, there do seem to be success stories around (mostly promoted by Groupon it has to be said). They seem in the main to be off the beaten track (thus low group rents and probably no business rates in some cases) so they need the promotion and already have quite a high mark up on their goods (so they can still operate on a 25% profit.

 

[Talay]

50% of the profits?? That's absolute madness. I wonder if there are any succes stories around, anyone getting their business growing with this? Perhaps if you are just entering the market with a product that needs plenty of promotion and that no-one else is offering...? I mean it can't all be bad, or groupon wouldnt still be around... right?

I haven't used Groupon yet but I am seriously considering though I am not national and serve only across three counties.

I have something which sells for £79.95. Say it costs me £30. Now I discount it by 50% to £39.95 and I give Groupon £19.95. I get my £20 back.

So I make nothing up front but I've lost nothing either, save some time and ancillaries. But I have got a whole heap of new customers to sell to and all their contact details to mailshot.

Adjust the figures a little, so that the headline is £99.95, discount to £49.95 Groupon take £20 and you keep £29.95 and you're actually ahead on the day as well as having all the other benefits.

It truly depends upon what you sell and how big your margins are.

 

[Page]

I haven't used Groupon yet but I am seriously considering though I am not national and serve only across three counties.

I have something which sells for £79.95. Say it costs me £30. Now I discount it by 50% to £39.95 and I give Groupon £19.95. I get my £20 back.

So I make nothing up front but I've lost nothing either, save some time and ancillaries. But I have got a whole heap of new customers to sell to and all their contact details to mailshot.

Adjust the figures a little, so that the headline is £99.95, discount to £49.95 Groupon take £20 and you keep £29.95 and you're actually ahead on the day as well as having all the other benefits.

It truly depends upon what you sell and how big your margins are.

provided what you sell magically gets booked in - booked out - wrapped with no wrapping charges - free carriage - no bank turnover charges and with no returns or other issues

Does not mean that it is not worth doing but you have to know what you think you are going to get from it - will any of them ever really buy from you again at full price or are they busy moving on to the next groupon offer - what do you have that will make them come back - it has to be truely unique

 

[businessfunding]

Groupon can work in high margin businesses - mostly service based.

The cupcake story is more a reflection of bad business planning than of Groupon itself

I don't believe there is ever a justification for selling at a loss but in going to Groupon you need to consider

1. Is there an upsell opportunity when the customer is on site?
2. Is there a realistic chance that 10% of customers will become full paying customers?
3. Are customers likely to recommend you to others.

 

[DavidAshdown]

I read the cupcake story and I thought "what a stupid woman". Why on earth would you promote any product in any format at a loss ? Its like putting a big sign in your shop window and saying "everything free" and then complaining that you've made a massive loss.

It's not up to Groupon to tell you at what price you should be selling at.

 

[garyk]

The thing is can you convert the 'voucher' sales into full paying customers? If so then its an effective lead gen tool.

The simple fact of the matter is that smart marketers realise that based on a known conversion ratio they can afford to lose or break even on the initial sale because this is the 'front end' and make money on the 'back end' as they have worked out what the value of a customer is, the customer lifetime value.

Gary

 

[DavidAshdown]

Does anyone have any stats to prove that selling at a loss leads to repeat business ?

Large retailers offer "loss-leaders" to entice people into their store and then very effectively entice people into buying other (and in some cases over priced) items but I'm not convinced if you sell a cupcake (or any other item for that matter) at a loss, then customers will come back to you when you want to sell at full price.

 

[Talay]

provided what you sell magically gets booked in - booked out - wrapped with no wrapping charges - free carriage - no bank turnover charges and with no returns or other issues

Does not mean that it is not worth doing but you have to know what you think you are going to get from it - will any of them ever really buy from you again at full price or are they busy moving on to the next groupon offer - what do you have that will make them come back - it has to be truely unique

I deliberately kept the example simple but with sufficient detail to show where it could work.

 

[Talay]

Groupon can work in high margin businesses - mostly service based.

The cupcake story is more a reflection of bad business planning than of Groupon itself

I don't believe there is ever a justification for selling at a loss but in going to Groupon you need to consider

1. Is there an upsell opportunity when the customer is on site?
2. Is there a realistic chance that 10% of customers will become full paying customers?
3. Are customers likely to recommend you to others.

If you sell a repetitive service, which have decent margins then you can.

The decision to buy the service is one consideration but most people have already made this jump and you are then onto choosing a supplier. Offering them a service, even for next to nothing, means that the true cost of that service can be spread over the expected lifetime of that customer as a client. When you compute that, it is a very low price to acquire a new customer.

 

[DavidAshdown]

I don't think its fair to have a 'scatter-gun' approach to say, stay away and blame Groupon for killing small businesses.

Surely Groupon must be looked upon as any other advertising/promotional method and businesses need to look at the risk and reward.

If a business undersells its product its only got itself to blame if they havent done their sums right. Groupon is just an advertising medium and as I said in a previous post, if you put a sign in your window saying 'everything free', then you can't blame the window when you make no money.

Do your sums and if it works for you it works and if it doesnt, it doesnt.

 

[Indivijewelistic]

I agree with all of the above. From my point of view I considered for upselling products in the store after the jewellery lesson but had the following issues:

1. Is the customer likely to purchase the product (or similar) at the full price? The answer to this in the craft arena seems to be no they would not, they bought the product as a 'one off' purchase as a day out for the girls or such and don't buy other products or come back.

2. Is there a chance that they will be sitting next to people who paid the full price? Yes, and the experience has also been that as they bought it cheap and are not as interested in the experience as people who paid full price they tend to spoil the 'creative feel' of the tutorial.

I also spoke to a hairdresser who said that most of the people who took up the offer admitted that they already had a hairdresser they used regularly and would not be changing, that they only took up the offer because it was so amazingly cheap.

 

[Talay]

... I also spoke to a hairdresser who said that most of the people who took up the offer admitted that they already had a hairdresser they used regularly and would not be changing, that they only took up the offer because it was so amazingly cheap.

Interesting point that people believe their current hairdresser is of a lower standard than they would like but they put up with it because the price of the better alternative is too high.

 

[thezero]

I haven't used Groupon yet but I am seriously considering though I am not national and serve only across three counties.

I have something which sells for £79.95. Say it costs me £30. Now I discount it by 50% to £39.95 and I give Groupon £19.95. I get my £20 back.

So I make nothing up front but I've lost nothing either, save some time and ancillaries. But I have got a whole heap of new customers to sell to and all their contact details to mailshot.

Is it just me or does that make no sense? If you pay £30 for something, then get £20 back after selling it on Groupon, you've just lost £10? Have I missed something here?

 

[Talay]

Is it just me or does that make no sense? If you pay £30 for something, then get £20 back after selling it on Groupon, you've just lost £10? Have I missed something here?

Sorry, should read a cost of £20, equating to the receipt from Groupon.

However, as it costs me more than £10 to acquire a sales lead in any case, losing £10 on each sale might still be attractive to me, though not to many I appreciate.

 

[businessfunding]

I don't think its fair to have a 'scatter-gun' approach to say, stay away and blame Groupon for killing small businesses.

Surely Groupon must be looked upon as any other advertising/promotional method and businesses need to look at the risk and reward.

If a business undersells its product its only got itself to blame if they havent done their sums right. Groupon is just an advertising medium and as I said in a previous post, if you put a sign in your window saying 'everything free', then you can't blame the window when you make no money.

Do your sums and if it works for you it works and if it doesnt, it doesnt.

I absolutely agree - I would add - take the long view, marketing is not a short game

Used wisely Groupon is effectively free marketing Potentially even profit-making marketing. at other medium creates instant revenue at no cost as well as long term potential?

If you judge marketing on instant results you will consistently miss the point.

 

[Harvest]

I understand you can't ask your competitors how their campaign went with groupon, but even if the deal has expired you can still see how many were sold on the website. That should give you some idea of how costs vs discounted price compare and whether it would be worth it for you.

Also worth providing eg a 20% discount voucher to use against future visits for the groupon customers, as once you've had a deep discount it's hard to go back and pay full price!

 

[Talay]

I understand you can't ask your competitors how their campaign went with groupon, but even if the deal has expired you can still see how many were sold on the website. That should give you some idea of how costs vs discounted price compare and whether it would be worth it for you.

Also worth providing eg a 20% discount voucher to use against future visits for the groupon customers, as once you've had a deep discount it's hard to go back and pay full price!

Why can't you ask a competitor ? Don't they have a telephone, email or a shop door to walk through and ask ?

I don't subscribe to the ethos that you're always fighting your competitors. Heck, I've even colluded long enough to share advertising costs because if you can build the marketplace for your goods, then the pie is bigger and even retaining your same percentage will result in greater income.

I might not give out the very specific details if someone came asking me but I'd give them time for a coffee and happily chat through their ideas if they had the thought to come visit.

 

[integrity Rules]

Edited

I
Surely Groupon must be looked upon as any other advertising/promotional method and businesses need to look at the risk and reward.

If a business undersells its product its only got itself to blame if they havent done their sums right. Groupon is just an advertising medium and as I said in a previous post, if you put a sign in your window saying 'everything free', then you can't blame the window when you make no money.

Do your sums and if it works for you it works and if it doesnt, it doesnt.

Part of the problem is that in certain segments of the market, Groupon has set false market rate for the discounts. For instance look at any Groupon advert for Colon hydrotherapy treatments, and more likely than not you encounter the eponymous 39 pound offer, or occasionally 39.95.
So even if your standard price is 95 pounds , and you regularly get sales at that ( fair) market price, if you were to go to Groupon they would expect you to run with the 39 pounds pricing model. Why? Because they say they have proven it works. How does it work. Only to gain first time sales. Well, lets say there are 100 Groupon sales , total sales 3900 pounds , your share 1750 pounds
( after taking into account Groupon VAT). You've sold your service for 17.50 per hr ( more if you take into account admin on the sales, which is quite significant ). Say you get 10 clients who book another 5 sessions with you at close to full price. (A tough enough sell, because they are sensitised to these low, low offers.)
Is that worth the hassle?
I would say not.
As a service business, your branding suffers . If your regular clients see the Groupon , they are going to wonder...
Your self esteem suffers. Its no fun working for peanuts for clients who really don't fit your ideal client profile.
Yes, Groupon is an advertising medium. And just like with every advertising medium, you've got to look carefully at the "deal " on offer.
Groupon not for us , thank you very much.

 

[Vectis]

Retailers are deluding themselves if they think that people will pay the full price after only paying 50% of the price previously. The people who use Groupon simply go for the lowest priced deal. Imagine if you got a great deal when buying a new car, would you go back to the dealer and buy another one at the full price later on? No, of course you wouldn't. You'd look around for another dealer offering a good deal.

With the OP, where do you think your customers will come from? They'll be the ones who used the discount offer at your competitors and when your offer finishes they'll move on to the next retailer who is offering a deal.

Go on some of the forums where people discuss Groupon deals, such as MSE, and you'll see that these people wont pay the full price. After the deal is over they simply move on.

 

[ballista]

We looked at Groupon briefly for some of our products but ran a mile when we analysed the economics of it. Your basically being forced to make a loss in the hope of promoting your business but in reality customers will probably move on after the offer.

 

[businessfunding]

We looked at Groupon briefly for some of our products but ran a mile when we analysed the economics of it. Your basically being forced to make a loss in the hope of promoting your business but in reality customers will probably move on after the offer.

I would say never, ever sell at a gross loss

After that point you can only really work out the rewards on the basis of strategic marketing

 

[mhall]

Personally I wouldn't touch Group On with a barge pole but my Brother in Law does very well with them - mainly because he is a photographer and the discount he gives is on an imaginary amount in the first place - and it's easy to "promote" a free sitting that would "normally" cost £60. They still have to buy the photos and those prices are inflated to cover Group On's commission. If they don't buy he has lost 30 minutes of his time and he sees that as training he is undertaking.

If it's a service based business based on your time then I can see it working quite well.

 

[CentralBeltITServices]

My thoughts would be if you are a golf club, theme park, cinema then these places wont really lose as they are not holding stock etc. so giving 75% off is not an issue for them and 9 out of 10 people going to these places end up spending money on food etc.

I have bought golf offers on groupon many times and end up spending money in the pro shop and in the club house so they don't actually lose and I am then likely to recommend them for a game of golf in the future.

I guess it depends on your business.