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Sell through Groupon... without losing your shirt

February 2012

Have you purchased a group deal from the likes of Groupon, LivingSocial or one of the many similar sites out there? How about offering a group deal through your business? The amount of growth this year in the group deal or “daily deal” space indicates that there’s a good chance you’ve done one or the other.

In a recent PriceGrabber survey, 44% of consumers polled said that they use daily deal sites. A survey of small businesses across the nation conducted by MerchantCircle showed a 33% increase in the number of businesses offering coupons through group deal sites. And Groupon’s recent IPO was labeled the biggest by a U.S. Web company since Google’s IPO, signaling that group deal sites are a significant force.

And, yet, despite these signs of positive growth, the media is filled with group-buying horror stories, where small businesses were overwhelmed with customers trying to redeem their coupons. In fact, a survey conducted in October 2011 by iContact revealed that 70% of small businesses hate Groupon. So, should small-to-midsize businesses offer group deals or not? As with so many things in business, it depends.

Not right for every business
It would seem that for every group-buying nightmare, there is an equally compelling success story. In fact, the PriceGrabber survey found that 75% of respondents said they would offer another group deal in the future.

Based on the range of experiences, it’s clear that the group buying model isn’t necessarily right for every business. The iContact poll noted that of the Groupon haters, nearly 80% were in the financial services/investment industry, whereas less hate (45%) emanated from professional services, such as spas and salons. One-off purchases and short-term services—restaurants, salons and such—do seem more appropriate for a coupon than something requiring a longer time commitment like financial services.

Group deals done right: There is a right way to manage group buying offers, and a lot of wrong ways. Based on what merchants have shared about their group deal experiences, here are some tips for turning a good deal for your customers into a good deal for you, too:

Run the numbers:Don’t jump into a group deal without doing some analysis first. The prospect of 2,000 or more brand new customers rushing to your business might seem very appealing. But remember that to participate in a service like Groupon you need to offer a deep discount on your goods and services. On top of that, a percentage of the profit you make goes to the website that is hosting your deal. Does the influx of new customers justify the cost of supplies, time and overhead?

Negotiate a better split: Customers buy group deals from the site that is hosting them on behalf of merchants. The site collects the money from the coupon purchase and pays a portion back to the merchant offering the deal. The current standard rate is supposedly about 50%. For example, a customer buys a coupon for $10 that is worth $20 in goods or services. Of that $10 sale, the merchant would only receive $5 if they’re working on a 50/50 split.

With the rise of so many group deal sites, there is more competition in the marketplace to offer better deals to merchants. It’s well worth your time to try and negotiate in your favor.

Assess your business infrastructure:Can your business handle a huge influx of new customers? Remember: group deals will get customers in the door. After that, it’s up to your business to provide them a worthwhile experience—hopefully so worthwhile that they’ll come back as repeat customers paying regular prices.

Most group buying horror stories are the result of poorly planned deals by businesses that weren’t prepared to serve a flood of new customers. In this situation the business could lose twice. Once by having to spend more on staff or supplies to honor all the coupons, and a second time if group deal customers have a bad experience and never come back (and worse, tell all their friends about it).

Set reasonable parameters:Many businesses that tried a group deal complained that they didn’t have enough control over when coupon customers came in. When setting up your deal, specify some limitations so that you are better able to serve your new customers, without unreasonably disrupting your existing customers.

How far into the future do you want to be still honoring the deal? How many deals can you afford to sell without cutting into profits? Can you limit the deal to higher-margin items that allow you a better profit? Should you designate certain times or days of the week when you’d like to see more traffic, or not interfere with paying customers—a slow Wednesday night at a restaurant, for example?

Collect customer info: The whole purpose of offering a group deal is to gain exposure and new customers. Use the coupon transaction as a way to collect some information about your individual customers so that you can reach out for their repeat business.

As with any marketing endeavor, orchestrating a successful group deal requires foresight and strategy. Apply both of those, and you’ll likely gain some new customers without damaging your business at the same time.
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