Groupon Deals Make Sense for Merchants

Aaron —

I love how you framed your post like a scorecard. I also love the cafe’s name. Not sure that would entice me in.

While I agree that the Groupon like deal got you to try a restaurant that you might not have, the coupon is a one-time promotion. The promotion is one tactic not a marketing strategy. On-going marketing is still required across a variety of platforms.

More important is that the issue with focusing on the marketing side of a group coupon is that it overlooks the real challenge for small businesses. The cost to the business is more than the marketing. It’s a reduction in revenue without a reduction in expense. As a result, each sale has little or no money to cover other expenses. For some businesses, namely Posies’ Cafe, this can bring a profitable establishment to the brink of failure. This is why while the research shows that a significant percentage of businesses find the coupon offers useful, the downside is a big risk.

While you enjoyed the meal, you’re similar to my friends since you don’t live in Singapore and won’t be a regular customers. As a result, the investment in terms of the reduced meal cost will not be recouped. Yes, you did refer the restaurant to friends visiting Singapore but that’s a very small number compared to your total social graph. Further, since you were on a budget, the chances are that you didn’t order additional food and drink that would have made the meal more profitable to the restaurant. (Note: This was the experience of Posies Cafe. In addition, the wait staff only got tipped on the amount spent not the amount served.=> lower tips.)

Thank you for taking my post and continuing the conversation.

Happy marketing,
Heidi Cohen

Hi Andrew,

Indeed making the girl happy is always the bonus LoL! She read this blog post too.

Its great to see that the deals that you buy often reminds you why you like their stuff. Sort of like a memory and experience for you. Great way to get people back in again don’t you think so.

You should talk to your dad about the boating class, have fun with it. Its a great way to spend time especially with your family.

I agree, a good business will calculate value lost against gain in buss.

Aaron

Hello Heidi,

Happy to see you here, I actually wrote this blog post as a comment, then it became too long so I decided to put it on my blog. I agree that this is a tactic and not a marketing strategy but I feel the ability to know first hand the exact amount to acquire a customer is great although the revenue stream is reduced. On going buzz might help this (if there is any). Having said that, all marketing investment reduces the revenue and not the cost.

LoL! You are right Heidi! We didn’t spend much on additional food. All we added were drinks.

Anyway I still think there are different reasons to purchase from groupon sites. Like Andrew (comment below) who usually purchase from places that he has been in the past that he often forgot about, group buys often reminds him why he liked their stuff.

Of course for me it was budget because I used most of them for the hotel LoL!

Aaron

Hello,

Yes! a business would always benefit despite the decrease in revenue or no revenue at all in my opinion, its the final buzz that matters. Most people are afraid to pay an amount, and not feeling satisfied. Groupon deals helps them with this matter.

Aaron, you make some HUGE assumptions.
On advertising costs- equating a print ad in a newspaper or perhaps a radio ad does not cost BEYOND the actual advertising.
True, the company is getting the impression value, but they still have to PAY for the goods/services being given at HUGE discounts.
I worked with a friend who has a retail business. Even counting the discount as part of advertising costs, she could not figure out how to meet Groupon’s insane rates.
For example, let’s say she wants to offer a $10 off $20 gift certificate for ANY purchase in the store (similar to MANY groupon deals). Groupon on gives her $5 off the sale.
Groupon pockets the $10. She in the mean time still has to be willing to part with $20 worth in merchandise. (she actually thought for a second, like many I bet, that she get’s $10 with the deal) NOPE
Not hard to imagine WHY this has hurt so many retailers now right?
Now the best thing that can happen for the retailer in terms of total cost is that the buyer never shows, because they have given over $20 in merchandise for $5. Granted in many cases, the customer would spend more, but the studies are showing that most deal taker are not returning customers or ones that the retailer is probably interested in keeping because a. they are regular customers and are just getting a discount or b. likely non-returning customers.

You assume more word of mouth, why? Because they got a deal? makes no sense, either you are sharing type on line or not, and I’d wager that more often than not the same ones that take advantage of the deals are not mouthing off about it too much for the business.

You say the profits come in the long run, but my friend’s case illustrates how it would hurt the short term too much.