October 8, 2010 § Leave a comment
Everywhere I go, I hear the two sides of Groupon. I hear friends talking excitedly about the Groupon deals they recently bought, while I hear business owners struggling with whether or not it is a good thing for their business.
But even more importantly, I think we are experiencing a new phenomenon in shopping with group sites setting standards for what a good discount is. No longer is 25% a good discount. Group buying deals start at 50% and can go as deep as 70 or 80%. According to Christopher Steiner of Forbes magazine, “It’s a cents-off coupon married to a Friday-after-Thanksgiving shopping frenzy.”
Well, here are some facts on Groupon that might help marketers determine whether it is good for your business.
1. Women are the primary purchasers of group-buying deals. ComScore reported in their 2010 Women on the Web study that 62% of Groupon purchasers, and 67% of Living Social purchasers were women. Make sure that your offers are targeted appropriately.
2. Group-buying deals can be profitable for businesses but remember that it is a test. 66% of businesses surveyed in a new Rice University study found Groupon promotions to be beneficial. However, 40% said they would not run the promotion again.
3. You must have a strategy for selling incremental or repeat purchases. Among those businesses that did not find Groupon profitable (32%), only about 25% purchased products beyond the Groupon value and less than 15% came back a second time.
4. Among Gen Y consumers, “Deal Seekers” are the most likely to engage with group buying sites. A recent ExactTarget profile showed “Deal Seekers” to be more likely to spend time in coupon forums and telling others about the great deals they have found. Why should I be surprised that my friends talk about their Groupons so much?
5. Restaurants seem to fare the worst among service businesses while spas and salons did the best. Restaurants are prone to get more “Deal Seekers”. In the Rice University study, 42% reported the coupons were redeemed by consumers who expected special treatment, didn’t spend more than the value of the coupon, did not tip and were not repeat users. So use the offers on low traffic dayparts and expect lower tips. You might even target a specific group for a promotion like a wine tasting or happy hour.
6. Know how to treat those new customers. Those who were profitable in using Groupon saw twice as many redeemers buying more than the value of the deal and 31% purchasing a second time. Spas seemed the most effective (82%) at making Groupon work for them.
7. Likelihood of success dependent on employees satisfaction and ability to reach new customers. The Rice study showed that only two factors seemed to determine the effectiveness of a group buying deal – how well the employees (the service providers) were prepared for the promotion, and the likelihood of new customers using the service. While this is not earth-shattering news, it is important to understand that “deal seekers” are probably not big tippers. Also, it is important to have a strategy in place to get the new customers in a database so you can effectively communicate with them.
8. Predictors of amount of coupons sold include length of redemption period and the amount of time since last group buying purchase. So the longer your deal is valid, the more valuable the deal. The more often you conduct deals, the likelihood that purchase will fall.
9. Social aspects of the medium often encourages groups of friends or family members to do things together. Cooking classes, tickets to events and dining out seem to solicit purchase because the deals are shared with others and offer a social outlet for friends and family.
10. Pick your offer well to encourage incremental or repeat spending. Does your offer encourage a variety of purchases or stimulate purchases over multiple visits? Do you use the offer to stimulate business in a daypart or area of your business that needs stimulation?
When evaluating Groupon or other group buying sites, consider your target and see if they can be reached effectively. Plan for unexpected volume and train your employees in grace under pressure. And try a group hug beforehand.