By
David J Dunworth O. C. E.
There is a tremendous appeal to the many Deal of the Day vendors, with Groupon® leading the way. This week Groupon® announced it will go public and will raise as much as $750 Million, much in the same fashion as was accomplished by Linked In. Never mind that Groupon has yet to bring a penny to the bottom line. Its subscriber base is growing like a weed on steroids, so that must be good enough. Does this remind anyone of the pre-Dot Bomb era?
There is a documented history of gains and losses by those entities that partook in the Deal of the Day offerings of these providers, and I want to refresh everyone’s short memory. Remember last year, when a company named Posie’s Café- Oregon did the deal of the day with Groupon?
Here’s what Redfin Corporate Blog had to say (September 16, 2010)
Corporate Blog
September 16, 2010
Groupon’s Success Disaster
There’s a fascinating essay on Facebook just now from the owner of the lovely Posie’s Cafe in Portland, about how Groupon nearly bankrupted her business.
The coffee shop proprietor, Jessie Burke, was shocked at how much money the daily deals site charged to run the promotion. Groupon sold consumers a $13 Posie’s credit for $6, and then sought to keep the entire $6. Eventually, Posie’s and Groupon agreed on a 50% cut: Groupon would get $3 and Posie’s would get $3. Groupon’s $3 was almost pure profit, but the cafe had to use its remaining $3 to cover the costs of $13 worth of cookies and coffee.
Is it any surprise the promotion was a smash? Over 1,000 customers used the promotion, but the cost imposed by those customers resulted in disastrous losses:
After three months of “Groupons” coming through the door, I started to see the results really hurting us financially. There came a time when we literally couldn’t not make payroll because at that point in time we had lost nearly $8,000 with our Groupon campaign. We literally had to take $8,000 out of our personal savings to cover payroll and rent that month. It was sickening, especially after our sales had been rising.
The losses would have been worthwhile if the Groupon customers had become loyal, profitable patrons but many only cared about a discount, not about what made the cafe special:
Over the six months that the Groupon is valid, we met many, many wonderful new customers, and were so happy to have them join the Posies family. At the same time we met many, many terrible Groupon customers… customers that didn’t follow the Groupon rules and used multiple Groupons for single transactions, and argued with you about it with disgusted looks on their faces or who tipped based on what they owed.
Think that this is a one-time complainer, an isolated incident? Here’s what Jay Goltz had to say:
November 23, 2010, 7:00 am
Doing the Math on a Groupon Deal
I have never seen anything that is both so celebrated and demonized at the same time. There has been talk that Groupon might be worth as much as $3 billion (it now looks as if Google thinks Groupon might be worth as much as $6 billion), and yet here are some blog comments from retailers who’ve tried the service:
- “It is for desperate businesses.”
- “The financials just can’t work out.”
- “Groupon is the worst marketing ever.”
- “We did Groupon. It was O.K. It brought in new customers — we kept most of them. But the margins are a killer.”
The full article provides a mathematical example of the potential outcomes for using it.
Here’s a solution for all you Daily Deal users: Mobile Marketing!
The skinny is that most businesses entertaining using a Deal of the Day program don’t fully realize the inherent costs involved. Not only do they have to give up a hefty discount to attract customers in the first place, they must pay a sizable amount (up to 50% of revenue) to the Dealer.
What most small business owners fail to realize are the hidden costs involved. What about the customers that take you up on your Deal, and never come again? How can you ever attract them again without another Deal of the Day? You’re probably banking on customer loyalty, but there is none when you are giving deep, deep discounts to the bargain hunters. Then there is the loss of typical business at full margin, even if it’s for one day.
Why not use mobile marketing campaigns for capturing customers? Sure, Groupon® and Living Social®, Gilt City®, Idilly®, Zully® and a host of others all can bring in customers, but at what cost? By incorporating a mobile marketing campaign along with it (or stand alone) by in-house advertising of a “Members Only” club, would-be joiners can simply “text to join” and you capture their data for as long as they remain in the “Club.”
My Gift to you is the concept of growing a loyal, dedicated customer base in which you can market to, reward, survey, coupon and an imagination’s worth of marketing opportunities.
Then you can market to them at will, for a variety of reasons other than giving away the store. There are a plethora of marketing strategies to employ with a mobile marketing program, and providers can explain how affordable, simple to set up, easy to market, and the tremendous potential it can bring.
Good Marketing!
David J Dunworth is an internationally acclaimed author and presenter on the subjects of business, focusing on the entrepreneurs and emerging enterprise arenas. He is the CEO of TeXT-Icon Mobile Marketing Communications (www.text-icon.com), an international text and video communications firm offering affordable and bleeding edge technologies for marketing.
You can read his blog by visiting:
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