March 30, 2011
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Affordably Build Your Brand
FedEx Global Brand Management Director Monica Skipper shares a cost-effective way to build a bigger brand for your small business.
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Today's hot Internet property is Groupon, the social media coupon marketer many small businesses are adding to their marketing mix. Many small businesses have benefited from the Groupon's ability to generate foot traffic and introduce them to new customers. But be forewarned: a Groupon campaign can be a monster that quickly sends you thousands of customers regardless of your inventory levels or readiness to process them. So, before you make the decision to augment your marketing efforts with a Groupon campaign, you have to do your homework.
Know the basics
These are the basic terms of a Groupon campaign:
- Steep discount required—Groupon asks for a discount of at least 50 percent.
- You can limit the window of availability but not the number of people who purchase the deal (a minimum number of customers that must purchase the deal can also be set).
- Groupon is going to take at least 50 percent of the revenue generated.
- If the price of your deal is less than $10, Groupon keeps all the revenue.
- You don’t get the revenue right away—Groupon pays you over three installments.
- There is a substantial human resource burden required to process in-store redemptions.
- Forty-two percent of respondents in a recent study said they would not use Groupon again.
Learn from others
Unfortunately, there’s no shortage of stories illustrating the disaster that ensues when a poorly planned Groupon promotion is launched.
Take Jesse from Posies Bakery and Café in Portland Oregon. Although there were plenty of warning signs, the temptation of growing her business was too great. When the promotion ran, her staff was overwhelmed by sometimes rude Groupon customers and her cash flow was smothered by the steep discount. Groupon’s CEO did respond to this story after it went viral and cited other businesses in the Portland area that have had successful campaigns.
Want to read more on Groupon? Check these out:
On the other hand, Elizabeth Lunney from ABC Language Exchange in New York learned some tough lessons but was able to adapt and make this platform work for her business. This is mainly due to the fact that her language courses come at a high price point, which is more attractive to Groupon based on per coupon revenue, and costs for her service are fixed. With careful planning, ABC was able to put new Groupon customers into empty classroom seats (teachers are paid hourly, not per student), but even with the steep discount, the additional students didn't upset Lunney's cost structure. Lunney was also able to negotiate lower percentage payments to Groupon, which may not be possible for small business owners selling low-priced goods.
Do the math
So, nevermind the hype surrounding Groupon and the great pitch you’re getting from their salesperson, you have to make an educated decision. The only way you’ll know if a Groupon campaign fits your business is to run the numbers.
Consider the following scenario:
- You’re going to offer your $100 product/service for $50.
- After paying Groupon, you’re left with $25.
- You’re not going to get all of the revenue at once.
Then ask yourself if the revenue matches your business model:
- What are your fixed costs/variable costs?
- Can your business handle an influx of hundreds or thousands of new customers?
- Will these customers purchase more than the face value of the coupon?
- Will these customers return or are they professional “couponers"?
- What happens to your brand when you drop your price by 50 percent?
- What happens to customer service levels during this flood?
Let’s face it; business success is based on profitability. Developing a strategy that attracts unprofitable customers, cannibalizes revenue from your current loyal customers (and potentially alienates them) is counterproductive.
Establish your marketing goals and then run the numbers against them. A Groupon campaign could work for your business, but maybe it would be disastrous. Either way, however, it’s still incumbent upon the business owner to understand the risks and walk away if the numbers don’t make sense, even if it's the hottest marketing strategy in town.
Check your balance, review recent transactions and pay your bill on the go.
BOB PHIBBS 1 year 1 months and 19 days ago
I respectfully disagree with your points about examining the "revenue model." How would anyone be able answer many of your questions until they were in the midst of a Groupon promotion? Small business cannot afford Groupon, LivingSocial or the rest if they really understood the risks. I covered many of them in an 11-part blog beginning with a case study at http://www.retaildoc.com/blog/groupon-worst-marketing-business/ Online discount coupons are not the answer. As Billy Wilder so famously put it, "If you have a problem with the third act, the real problem is in the first act." The problem you are trying to "fix" isn't that you just need "more customers" - you need the right ones to return again and again. If they aren't - look in the mirror.