We have all seen the ads, the unbelievable deals advertised over group coupon buying websites. I was introduced to the phenomenon by a co-worker’s enthusiasm with the site Groupon. I was intrigued by her excitement and decided to sign up in order to see the deals for myself. I now receive daily deal updates from the site, alerting me to a plethora of deals, everything from Spa adventures, culinary experimentations, hair straightening sessions, exotic and not-so-exotic trips, horse-back riding lessons, and painting classes just to name a few.
Why are these online group coupon sites so successful?
Why are sites like Groupon and its similar competitors, Buytopia, Dealfind, GroupDudes, Living Deal, LivingSocial, Teambuy, WagJag, and WebPiggy so popular? What is the impetus behind this impressive success? The daily deal, group buying coupon business has quickly become one of the most lucrative industries on the Internet. The annual sales of Groupon have risen to an estimated $3 billion in just three years, making it the current industry leader.
How do they work?
- There is a time limit on each daily deal presented; this is usually a day
- The deal only takes effect once enough people buy it
- Consumers get discounts of generally 50% or greater
- Merchants get a 50-50 split of the profits with the site offering their deal
How will it affect your office business center?
Honestly the success your company is able to achieve through advertising in this method is dependent on several factors:
- Location and brand recognition of your business: Customers are not going to sit in your basement to receive a massage, they want to go to a spa for a fraction of the cost
- Internet exposure: how out there are you? Multiple sites mean more chances for people to purchase your daily deal on deluxe gift basket weaving courses
- Price: the discount you are willing to provide, generally it must be more than 50% to garner serious interest
- And most importantly success is dependent on: the nature of the business you run
When to advertise…
If your business provides a service that does not require extra staff or stock, these websites will be an excellent marketing tool! For instance, if you run a office business center, a fitness studio, or a salon and your staff will receive the same pay regardless of the amount of customers, than this is perfect marketing solution for you!
For companies whose main costs are mostly fixed, such as salaries and rent, large discounts can be very profitable. For example, if your Spanish instructor will receive the same flat rate whether she teaches 10 or 15 students, then you will benefit from posting on daily deal sites. That is of course, as long as the admission fees of those first 10 students cover the initial cost of the room rental and the instructor’s rate. If the class can accommodate 15 students but only 10 have registered, why not advertise the last 5 spots at a discount? If the remaining 5 seats are sold at even least than 50% of their value, it is still profitable.
Airlines have long worked on a similar principle; passengers all pay different fares for seats on the same flight depending on when and where they bought their ticket. A half empty flight is a perfect opportunity for the airline to benefit from the use of daily deal and group coupon sites.
What if you run a yoga studio in the middle of nowhere in a highly competitive city where there are other clearly branded and recognizable locations available? Companies with unknown venues can gain an advantage, in that you can peek consumers interest with the services you provide and literally make they come to you. Once they venture out and discover your yoga studio, they are more likely to do it again if their experience was enjoyable.
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When to be wary…
When utilizing a daily deal site in order to entice people with discounts, you must be careful that this loss leader strategy does not progress into straight loss.
If your business sells or finite products and goods such as TVs, lamps, or wood, etc where you have to pay for each item you are about to discount, be wary of this online market! Ask yourself: If everyone who purchases a coupon online were to cash them in over the next week, would my business center revenue be impacted negatively?
Consumers have developed a sixth sense for deals and when a deal is too good to be true, they know it is only a matter of time before you run out of 50" TVs priced at 65% off the regular ticket. They will flood in, take all of your stock and you will be forced to order more just to keep up with the demand. To lose a little money per sale is a strategy that some of the largest retails have been doing for decades. The loss leader strategy of targeted, limited time discounting works when it brings in customers who also buy other goods or services. However, if customers are entirely disinterested in purchasing a DVD player or TV stand while in the store, you are very quickly going to represent a loss.
Also be advised that if your plan is to provide deep discounts on a site where consumers pay up front for coupons usually at 50% off or greater, these websites often split the revenue 50-50 between themselves and the merchant. Therefore, you may be left with even less profit than you thought. Yes, this strategy will get people into your store and familiarize them with your brand and merchandise. However, they can walk right back with an amazing deal and deals do not always equate to customer loyalty. If the costs of replenishing stock greatly outweigh the short term profit generated by the coupons; then this is not the right venue for your business to utilize. However, if your company ever becomes over stocked, then group coupon sites can be an appropriate means by which to eliminate the extra stock at a discounted price.
The side effects: The cyber bargain basement shopper
Consumers both online and in-store have been transformed by this internet phenomenon in the sense that many essentially refuse to ever pay full price again. Some will sit for hours searching for promotional barcodes or online coupons in order to save money on everyday goods and services. Many wait until the last minute to try and save; paying regular price is now considered over-priced.
Sellers are now marking up their prices, in order to discount down later in order to psychologically provide a sale. For merchants to be profitable, they have to balance the amount of consumers who pay a higher price and those that receive a deal. However, as more consumers use online promotions, daily deals, and group coupons they begin to become the new norm. If most people are buying at the deal price, then isn’t the deal pricing really just the new regular price?
The allure of seemingly heavily discounted, time sensitive goods and services can sometimes become entirely too enticing for consumers to resist. Do the deals transform bargain basement hunters into loyal customers? Usually, it just reaffirms their deal hunting penchant; further persuading them to never pay full price again!
About gang&lani productions
gang&lani productions is an ABCN Ally Member. Have feedback or want to learn more? Contact us at [email protected].