Groupon and Living Social generate billions of dollars of revenue for themselves and lesser amounts for the businesses that use them. On the typical deal, the retailer gets about 25 percent of retail. This is a significant promotion cost compared to advertising and other discounting ideas. The business is spending 75 percent of retail on the promotion. A lot of potentially effective advertising can be bought for that amount of money.
Both Groupon and Living Social have publicized how well they do and the gross of some of the better deals. What is not really known is how profitable these deals are to the business and if the deals are worth the 75 percent loss of gross to generate repeat customers. Getting a customer once at a 75 percent discount only works for high margin businesses.
The two most likely to respond to offers are CURRENT customers who value the offer and now buy at a 50 percent discount. The other likely respondent is the DEAL shopper who is unlikely to repeat. The deal shopper comes for the deal and is ONLY looking for a deal. That shopper goes for the next deal from a competitor but does not come back unless another deal is offered by the first business. Most businesses can’t profit at a 75 percent discount unless the customer becomes a repeat shopper. Fully 82% of businesses that used Groupon were unhappy with the level of repeat business according to research from Cooper Murphy Copywriters.
A better way?
Perhaps the large database of buyers is worth the huge discount even if the repeat customer rate is low. There might be a better way for some businesses want a better margin and a higher percentage of repeat customers.
It is generally true that the profile for new customers is similar to the profile for current customers for most businesses. Suppose a business could offer a deal to a current customer to GIVE to a friend or relative. This “new” customer might have a similar profile to the current customer and therefore be more likely to come back and become a regular or repeat customer.
Suppose the business offered current customers a 50 percent discount coupon to give to anyone they want. That customer is likely to give the coupon to someone similar to himself or herself. This is a prospect that might be more likely to return and not just come for the deal. Also, if the offer is half off, which is what the typical Groupon deal is, the business does not have to share that with Groupon. That means the business keeps 50 percent of “retail” versus the Groupon deal where the retailer keeps about 25 percent of retail.
Of course, the present customer might keep the coupon for himself but that is happened now with Groupon and the business only gets 25 percent of retail.
This idea may not work for every business but it definitely could work for a symphony or museum that has season ticket holders or members. Suppose the symphony gives a half off certificate for a future concert to a season ticket holder with the idea that they can treat someone at a huge discount. This is the symphony’s way of thanking the season ticket holder for his patronage. It might be presented on the person’s birthday if that information is in the database.
The patron appreciates the gift and is likely to redeem it with someone who has an interest in hearing a symphony perform. This works for a symphony or art museum or any performance hall with season ticket holders.
As a “friend” discount
It can also work for other businesses as a “Friend” discount. The point to consider here is that the concept of offering a substantial discount can be used discreetly by a business without a huge email blast to the general public as Groupon and Living Social do. This idea definitely makes sense for a restaurant too.
Offering half off through current customers who “bring a friend” or give it to a friend costs much less and offers a higher possibility of repeat customers. The half off idea is a powerful inducement to get a new customer. It could also be as simple as a half off coupon in a local newspaper or an email blast to a business’s own database.
This approach reaches fewer prospects than Groupon but the cost is affordable and repeat business is more likely. Rather than being infatuated with Groupon, a smart business can come up with better alternatives and better outcomes. Why let Groupon or Living Success take so much for doing so little?