By now you may have heard of the popular online coupon marketplace known as Groupon. With Groupon, businesses can offer steeply discounted services or products to be showcased for Groupon’s vast following. A certain number of users must sign up in order for the offer to take effect, which spurs users to spread the word about your company. By being featured on Groupon, your business can greatly increase its customer pool–although you will sacrifice profit margins and must share revenue with Groupon.
Groupon sounds like a pretty good deal, especially since businesses only pay for sales made, but is it right for your business? The following list outlines some situations in which it could be beneficial (or detrimental) for your business to try using Groupon.
When to Use Groupon
If you have a lot of finished product sitting around, Groupon could be your ticket to clearing the warehouse. Especially if it is costing you a significant amount to hold on to the inventory, you may as well use Groupon to clear it even if this lowers your profit margins.
Groupon is a great tool if you think discounted sales will result in customers returning for more at full price. In this case, you can think of the discount and the revenue you share with Groupon as a customer acquisition cost. Especially for new products and services, this can be a way to give customers a taste of what you offer in hopes they come back for more.
Even if customers don’t return after the initial sale, for some products they might be tempted to buy more at the time of the Groupon redemption. For example, if you offer two-for-one sandwiches at your restaurant through Groupon, the customer might also buy a drink or snack at the standard price. If you can compensate for the lowered Groupon profits with full-priced additional sales, then you’ve really won.
A good example here is a tourist service such as a cruise around the harbor. Any unfilled capacity you do not sell is gone once the ship has sailed. You could sell this unfilled capacity during off-season through GroupOn.
Keeping the Lights On
If your factory has excess manufacturing capacity in the form of equipment and personnel, you could use Groupon to sell that excess capacity in lieu of selling the equipment or laying off employees. Groupon could be just the short-term infusion you need to stay afloat during these tough economic times.
Attracting a Young Demographic
Most Groupon users are young (68 percent are aged 18 to 34). Therefore, Groupon is ideal for products and services targeting this demographic. There are several other heavily weighted demographic groups (77 percent are female), so be sure to check out Groupon’s user breakdown to see if it is a fit for your target market.
For a new or relocated business, Groupon can be the perfect way to familiarize a large group of customers with your product. Plus when someone gets a great deal they usually tell someone about it. In a new area Groupon can be a relatively cheap way to expose your product to new customers and then let word of mouth do your marketing for you.
When Not To Use Groupon:
Unprepared for Large Influxes
Be warned: Groupon sales have the potential to attract high volumes of customers. Depending on the size of your business, Groupon sales may generate demand that you may not be able to meet. Though there is usually a long time period for coupons to be redeemed, customers just might redeem all at once, and in that case you had better be ready.
When You Never Have Repeat Sales
The sales you generate from Groupon will be a lot less valuable if you cannot use the new relationships you create to drive additional sales. Since there is such a large discount when customers use Groupon, you need to make sure the investment will be worth the cost.
Have you used Groupon for your business? Are there other reasons that you can think of for using or not using Groupon or similar services?