By now, you’re probably familiar with the sorts of deals available to the average shopper via sites like Groupon and Living Social. These location-based deals give consumers a chance to save some money while simultaneously allowing businesses to generate buzz about their brands.
Living Social incentivizes users to tell others about what they’ve found by giving the deal to the original user for free if at least 3 friends purchase the deal as well. Similarly, Groupon doesn’t activate a deal until a minimum number of users purchase it—this drives users to share the deal on social media sites to get the word out to as many friends as possible.
Many retailers are chomping at the bit to take part in a Groupon and Living Social promotions. While consumers love the online daily deals site, there have been a number of horror stories this year from retailers that have had their business negatively affected after running a Groupon or a Living Social promotion.
It’s important for retailers to understand how coupon promotions work before deciding to take the plunge. Here’s a quick guide on the subject,
How Groupon Works for Retailers
Groupon and Living Social offer the following opportunity for retailers:
- They pitch a promotional deal for your business. These deals will vary, but they’re usually in the 50-90 percent-off range.
- If enough consumers don’t purchase the coupon, then you don’t have to pay Groupon anything for the free advertising and promotion.
- But, if enough consumers do decide to purchase a coupon, then Groupon will take about 30-60 percent of the promotion and send the rest back to the retailer in three installments over the span of 90 days.
So in a nutshell, the Groupon promotion will sell your inventory at about 75% of its value, and pay you for it over the span of a couple of months. Doesn’t sound like the best strategy, but Groupon says the idea of its service is to get your brand name out to a new audience, encourage customers to purchase more when they enter your store, and to gain new, repeat customers.
Unfortunately, a report on online social deal sites from Rice University says this doesn’t happen. You can check out the full report here, but the main findings are that most customers don’t purchase anything more than the coupon allows, and they don’t come back because they’re loyal to the coupon site, not your business.
So as a retailer, should you avoid these coupon promotions at all costs? If used correctly, a coupon promotion can be effective. One such way is to use a coupon promotion to get new customers into your store, but provide extra incentive for them to return. Examples of this include additional coupons for customers, or just letting them know about future events and promotions.
Another great way is to run a deal on inventory that you have a surplus on. The deal will allow you to eliminate your excess inventory at a rate you wouldn’t have been able to before.
Most importantly, though, is to analyze your business and decide what you can afford and handle before even speaking with anyone from a coupon promotion company’s sales person. This can be done with the help of retail point of sale software. By using these systems, you can gain a better understanding of your business, and can approach the Groupon team with the exact deal you wish to promote. Within your point of sale system you can use the following applications to help you make your Groupon decision:
- Inventory management. Use this method to find what amount of “perishable” inventory you need to sell.
- Retail accounting. Crunch your financials and decide what size of a deal your business can really afford. Do the math, and be firm when working out the Groupon deal on what you will allow.
- Retail CRM. CRM software is a great way to analyze how your business’ marketing initiatives are paying off. You can use something like Salesforce.com to look at your marketing if you don’t have a system that offers this.
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