Business Owners Beware: 7 Gotchas From Groupon-like Promotions

The past two years have been a boom for daily coupon deal sites such as Groupon, BuyWithMe, and LivingSocial. The free advertising, instantaneous cash, and hundreds of potential new customers obtained from this exposure can seem too good to pass up for business owners. But before placing a coupon on these sites, business owners need to recognize the potential dangers.

Daily coupon sites encourage participating businesses to create an offer that includes a steep discount – very often 50% off of a normal price. This pricing is usually effective at getting customers to act, and there are stories of businesses selling hundreds or even thousands of vouchers in just a few hours. While the staff at your local daily coupon site will try to convince you that your discount is just a small price to pay for a flood of new customers, there’s a little more to it. Here are seven things to think about before investing in a daily coupon type offer:

1. Many of the consumers on daily deal sites buy more than one coupon per offer
This reduces the actual number of “new” customers your offer can reach. For example, if you offer five hundred oil change vouchers with a 50% discount, you may find that a single person or single household will find a way to buy multiple vouchers for themselves – despite the best efforts of coupon sites to prevent this type of thing from happening. This can mean that your 500 vouchers really only result in 250 new customers.

2. Voucher customers are hard to upsell
Many consumers will spend the bare minimum amount needed to use the coupon, which means that you should prepare for the fact that your business probably can’t “make up” the loss of your coupon offer with add-ons. Many business owners and managers assume their staff can “upsell” the customers who have the discount voucher, encouraging these people to buy some additional services, but this is often difficult.

3. The coupon site representative doesn’t have your best interests at heart
Their job is to find offers that sell well, regardless of how effective or affordable they are for the business owner. It’s essential that every offer has a strict budget, and that this strict budget accounts for the possibility that your offer will be wildly successful. The last thing you want is a widly popular Groupon or LivingSocial offer that drives your business into debt.

4. Think about your business’s capacity to service new clients
If a sudden influx of customers leads to supply shortages and/or long wait times, your offer isn’t likely to have the intended effect. Instead of gaining a new customer, long wait times can create a feeling of poor service, negative reviews of your business online, etc.

5. Customers with vouchers may not be good long-term customers
While there are many businesses that have grown by leaps and bounds as a direct result of a promotion on a daily coupon site, there are just as many businesses that found daily coupon customers were more interested in finding deals than finding a place to do business. Remember the adage “Once a deal seeker, always a deal seeker.”

Customers who find your business via a coupon offer are more likely than most to leave you for the first competitor that offers a better price.

6. Your staff might not like your offer
It’s important to remember that there’s more to a daily coupon promotion than dollars. If the staff at your business doesn’t have a positive attitude about the sudden influx of customers – and the extra hours and workload that might come with it – then your new customers are less likely to have a good experience. It’s a very good idea to make sure your staff understands the big picture and buys-in to your offer, and it may be a good idea to include some sort of bonus or extra compensation for your team into the budget of your daily coupon offer.

7. Bad daily deals can happen to any business
If you’ve read through this article and find yourself thinking that you can avoid the mistakes others have made, good for you. However, consider this: even big companies with significant resources and experienced staff have made mistakes. FTD suffered though some negative publicity this past Valentine’s Day from a Groupon deal gone wrong, and while a group of Chicago area Hyundai dealers were initially excited about their Groupon deal in April 2011, by August 2011 Automotive News reported Hyundai would not be doing any similar dealers for the foreseeable future. The fact that Hyundai would reverse their opinion in only 90 days should be a flashing red warning to businesses big and small.

While these 7 “gotchas” aren’t intended to discourage your business from participating in a Groupon offer, they are intended to encourage caution. In order for a business to have a successful daily coupon offer, they must have an excellent understanding of the potential cost of their offer and they must be prepared for a potential onslaught of customers. Otherwise, the costs of a daily coupon offer could far outweigh the benefits.

Author Jason Lancaster is the President of Spork Marketing, a small Internet marketing consulting firm based in Denver, Colorado offering guest blog posting services.

Note: Featured image provided courtesy of Living Social.

Filed in: Business, Entrepreneur, Feature Articles, Marketing, Offline Marketing
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