Responding to a great article by Heidi Cohen on Groupon, in her article she stated Groupon was unprofitable for 1/3 of the merchants surveyed and that over 40% of them wouldn’t run a repeat offer according to researched done. Which means 2/3 actually made a profit from it and 60% would repeat offer, fair enough!
Heidi also talked about her friends experience with Groupon where they use them to treat themselves to services that they might not do at full price, often a girls’ day out and that it’s not traffic these businesses want.
So does all this make sense for businesses? In my honest opinion, groupon or group deals do make sense for merchants.
Before I talk more, I want to share my experience using groupon clone sites. Last December I visited Singapore for the first time when I attended iStrategy conference. I wanted to save money, so I decided to get deals from groupon clone sites in Singapore so that I can buy my girlfriend a great (and cheap affordable) meal.
So I went for food which I won’t usually eat and pay. I bought two coupons and saved us 100% (50% off for a coupon). I paid SG30 (US23) for two great meals.
Summary of the day! Love it!!! Food was great, services was great! Everything was fantastic.
It was a good deal for me.
Aaron 1 – Merchant 0
Girl friend was happy (most important)
Aaron 2 – Merchant 0
Now the question is does it make sense for a merchant?
Saving cost on advertising
Merchants need to understand, that even though they don’t use sites such as groupons etc., they will still pay for advertising, whether it’s a magazine ad, local newspaper ad, etc., magazine ad and newspaper ad is quit costly, and it’s not guaranteed to bring in customers. Not to mention designing and ad which might add cost for them. Did it cost the company to put an ad on group deals? = $0
Aaron 2 – Merchant 1
Confirmed walk in customer
So with groupon, a company is actually getting confirmed walk in customers. Just like when I bought the deal in Singapore. I wouldn’t miss it for the world. Most deals have a number of customers so that the deal will fall through. Some 100, etc.
Aaron 2 – Merchant 2
BOY the meal was fantastic. I made sure that the plate was cleaned before I left the place. Love the place and I love the environment. I left that place satisfied, and I told my friends about that place and the food. I told them to try it when they were in Singapore because it’s really worth the price that they are getting. Word of mouth marketing.. checked!
Aaron 2 – Merchant – 3
Although some businesses might not see profit straight away from deals like this, it’s actually better to get customers in rather than customers who saw an ad from a magazine and wanted to try the food because they saw that the place had a promotion. Similar don’t you think so? Cost of advertising + promotion.
I love deals. We all do just like Heidi mentioned in her article. One reason I love deals is because it allows me to try new stuff without paying the full amount. If I like it, I’ll continue to go there, buy there. If I don’t then I won’t go there anymore. Not a chance!
So despite some deals only getting one customer who would only try It once, if they had a great experience just like I did, they would recommend it to their friend. Posting it on their Facebook, twitter, foursquare, you name it. Deals like this are more about creating the conversation. Profits usually come in the long run, in my opinion. However, having said that, I would recommend that all businesses understand the nature of their business before going into group deals.
Have you purchased deals I like I did before? Would you go back?