April 11, 2011

Group-buying deal services such as Groupon and Living Social are white-hot and for good reason: they send buyers to your doorstep like no other vehicle currently.

But, some would argue at what cost. These group-buying services often send buyers that are simply looking for deals and require the business owner to effectively discount their products and services up to 80 percent in some instances. (Want to know more about Groupon? Listen to this interview with CEO Andrew Mason.)

If you think about it though, most advertising and lead generation activities come with some cost associated. Few small businesses pay close enough attention to their customer acquisition costs, but it’s one of the greatest metrics going.

If you can determine how much it costs to acquire a customer and how much profit you can make in a “lifetime” of serving that customer, then you can determine how much you can afford to sink into acquiring more.

Since group-buying services can drive such a flood of leads at a known cost, the real way to make the deal game pay is to spend sufficient time developing programs to generate additional profitable business from as many of those deal shoppers as possible.

There’s no question some percentage won’t be back; heck, I’ve purchased Groupons from neighborhood joints that I was going to anyway. But the key is to convert trial users into repeat and refer business.

1.   Check your attitude. I can’t tell you how many businesses make Groupon users feel unwelcome. Think about it, you paid to get me to try your place and then you immediately make it a bad experience. If you’re going to invest in a coupon, go over the top to make me feel special–find out if it’s my first time in and maybe even give me a surprise. You won’t start to make money off me unless I come back and bring friends.

2.   Capture data. Only one place I’ve used a Groupon has made any effort to learn who I am. Give coupon buyers a reason to join your community. Offer them recipes for the meal they just ate, create a newsletter on trends related to your store and ask for feedback on their experience. Maybe even show them how they can review your business on Yelp or sign up for your very cool referral program.

3.   Tailor additional “coupon-like” promotions. These folks respond to what feels like a deal. Think in terms of creating special lunch menus, previews and guest talks, and then send them routine announcements via e-mail to get them back. (This is also a great way to stay in touch with all of your customers.)

4.   Prepare a valuable upsell. When your coupon deal seeker comes to your place, honor their coupon with a smile and then tell them about an even better deal you have just for them. 

5.   Create membership. Many businesses have embraced the frequent buyer club approach and this goes very nicely with the new trial coupon buyer. Make certain that you have a way to expose them to a habitual way of buying more and referring business.

Related Topics

• Marketing

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John Jantsch, Article, daily deals, Groupon, Duct Tape Marketing, LivingSocial

Join the conversation ( 14 )

• Ola Ayeni, DVM 1 year 1 months and 4 days ago

  

  John, I enjoyed your article as always. You have hit a very important area of the group buying space.Jeffrey, whether you agree with John or not makes no difference to the reality of what is happening in the real world.In the real world, what business owners are desperately in need is sales. And many restaurant owners are doing groupon and others like wild fire. For a simple reason, they get a flood of new customers. But many business owners are not smart about negotiating what type of deal they should offer, group buying pricing, ask for customer data especially e-mail addresses to follow up. To your point Jeffrey, this is not a sustainable way to grow one's business for a long term. It is sure a way to generate quick leads, which in turn leads to guaranteed income.Most of what John is writing is how to manage the process and use it to one's advantage.Simple.Ola.DiningDialog

• Andrew Cunningham 1 year 1 months and 8 days ago

  

  The real danger of "group coupon" marketing is the 50% commission on the 50% (or greater) discount. A business wanting to grow utilizing this method better have a massive gross profit margin to acquire customers at what is effectively a 75% or greater discount - especially if only a small number actually come back and become lifetime clients.But if group coupons are not a sustainable marketing vehicle for growth, what is? Well, I’ve worked with dozens of retail clients in a variety of sectors and I can tell you from their results the most immediate, profitable, and powerful approach to new customer/client acquisition comes from partnering with other businesses that already sell/service to your ideal target market.For example, if you own a restaurant instead of giving away 75% or more of your profit just to get people in the door, consider approaching a neighborhood jeweller and give them coupons or certificates that offer great value – maybe as much as 50% off - but which are distributed only from that jeweller (via specific tracking codes or customized certificates) to their better clients. This is a classic – centuries old – “win win” cross promotion where the jeweller gets to add value to their buying experience at zero cost, you market - at very little cost - directly to your desired audience, AND in the process your business does not endure the stigma of desperation or “dirt cheap” provider that is inherent in the group coupon craze. Plus, you can run multiple cross promotions with many different businesses with seasonal specials and audience specific offers.

• TJ McCue 1 year 1 months and 8 days ago

  

  Link broke: here it is again as Bit.ly: http://bit.ly/hT6Stt

• TJ McCue 1 year 1 months and 8 days ago

  

  I read this post at SmallBizTrends today John and thought of you. Robert Brady offered a great tip on how to make Groupon worthwhile. http://smallbiztrends.com/2011/04/whats-wrong-with-groupon.html#comment-1050130

• Perry Evans 1 year 1 months and 13 days ago

  

  Great post, John. Your viewpoint is reflected in the new product we rolled out last month, essentially turning Daily Deals into a selective, private tool, which can be integrated with a demand-printed "Offer Card". The concept is to hand select your best visitor in a campaign, or your best customer overall and give them a return visit deal. Check out SocialSelect.com for more. One thing we've observed is that Daily Deal consumer return rates are sliding - "tour bus" behavior we call it. Our goal was to create a product to improve the ROI of a Daily Deal campaign, and give a business the tools to use Deals very selectively, building their own email list in the process. Best, Perry

• Frédéric Kuzyk 1 year 1 months and 17 days ago

  

  John,Been reading your posts for quite some time and always appreciated your precious insights... except today. I'm not convinced at all by the point you kindly share. "you don't look at this as a discount, but as any other lead gen tool". Sure John, but this tool generates very low quality leads. Basically your cost per customer acquisition may be the same as with any other marketing program but this measurement is not enough. What kind of customers you are acquiring via this strategy is what matters the most. In the "Grouponing" case, the quality of those customers can be very low. So simply looking at the cost of acquisition is misleading.I know what I'm talking about since I'm a gourmet gift food retailer and we've tried such group deals and even though it brought some traffic, the quality of this traffic (read: shoppers) was clearly not on par with our expectations. In other words, it was a total disappointment despite following an approach that kind of matched 4 out of the 5 points you mention in your post.So I think one cannot generalize on the potential of "grouponing". It depends on the business. It's more important to target the right customers. Quality over quantity.

• Devesh Dwivedi 1 year 1 months and 17 days ago

  

  @John: First of all, do NOT mistake my first hand experience as 'assumptions'. I'm involved in marketing and sales for this startup on a daily basis. Plus my experience with a number of clients, that I have helped use this tactics to solve a variety of challenges from short term cash-flow problems to getting some new clients to even funding the expansion of a startup.Second, while I loved the response we initially got from the group buying sites and as a matter of fact we funded the startup with the incredible success we had with it, up-selling and the customer retention is pretty challenging, simply because these are people who hop service providers based on deals. Believe it or not 80-20 applies here and RE you or those returning clients, you guys are amongst the 20%.Thanks!

• Diana Davis 1 year 1 months and 17 days ago

  

  Thanks for the great article, I am looking into running a group coupon deal for my sister company but am having some trepidation about it. We offer professional development workshops to teachers nationwide but it is such a niche market and they are charging a 50% commission on top of the required 50% discount. The thought is that we can capture a new market and retain their business for future workshops. We'll see.....

• John Jantsch 1 year 1 months and 18 days ago

  

  @Devesh - this tactic is not for every type of business but my experience is different from your assumptions. I have worked with several businesses that used the advice contained in this post to gain dramatic increases in customers and retention.I know in my own use I have found a number of new businesses that I return to as well.

• Devesh Dwivedi 1 year 1 months and 18 days ago

  

  John: While I think this post will be useful for anyone considering group-buying deal tactics for their business but I disagree that these deal buyers have any intent to come back... The 80-20 rule applies here, 80% of the deal shoppers are the one who are not there to try something new or different, these are penny pinchers who would just move on to next vendor with another such deal. As a matter of fact I've first hand experience with clients who have said, "I don't want to buy what you're up-selling me as I would just wait for a similar group-buying deal". You see there are dozens of such sites and the price war, no scratch that, discount war has ruined the marketplace. The only way a business can see some success with these clients is either identifying the 20% who w(c)ould come back and focusing the energies there OR collecting info like email ID and sending more deals to these penny pinchers, as you very rightly said "These folks respond to what feels like a deal."I'd love to see a case-study where someone actually did dig deeper into how many new full paying clients they actually acquired after running a deal, and not just the numbers of deal vouchers sold and served. I do however believe that this could be an effective jump-starter advertising for any new business or startup; not reliable for ongoing lead gen. or marketing though.What's your thought?

• Caroline Jaffe-Pickett 1 year 1 months and 18 days ago

  

  Excellent points here. I just started a month ago doing marketing and communications for our local yoga and pilates studio. We are being aggressively approached by the group coupon folks, such as Living Social and PopSugar, which just finished a 4-day promo. We did cut our monthly rate in half, and are waiting to find out the results. What is good to know is that despite their large page views, you still need to push the promo a fair amount. I added the link to a dedicated email blast, posted on social media including many Facebook Walls, and spent several days doing the extra promo. It will be interesting to see what happens, and I will also add that the marketing folks representing these companies are definitely the most aggressive I've seen so far in terms of going after your business.

• John Jantsch 1 year 1 months and 18 days ago

  

  Jeffrey, you're kind of helping make my point here - what I'm suggesting is that you don't look at this as a discount, but as any other lead gen tool. Think about it - a new place opens up and run thousands of dollars of advertising with the hope of getting some people to try it out or a new place opens up and gives away thousands in trial to guarantee hundreds of customers come in the door. Those customers have a great "trial" and go out and tell the world what a fabulous place this is. They also sign up for the newsletter, enroll in some cooking classes and become members of the frequent dinner club.So let's recap - same outlay of cash with potentially far greater results - look beyond the discount mentality and you'll see the entire post was about adding value!

• Jeffrey Summers 1 year 1 months and 19 days ago

  

  If you have to use a discount to get them in, you'll have to use discounts to keep them. And that's no way to live or run a business. I've just discounted everything you ever said about the need to add value to the customer experience. Groupon (and discounts in general) are a business killer, not a business builder.

• Roger Ach 1 year 1 months and 19 days ago

  

  Good post, John ! I would urge you to add 2 more rules: first, utilize #VideoCoupons and #VideoAds as Video is 2X to 3X more engagng than static text and display. Second, add Transactional capability to marketing and ads...so that you capture that customer purchase on the spot, especially in the Moble market.vADz Video tools enable both. Please see www.vADz.com. Your comments are welcome.