Groupon Attracts Customers, but are They the Right Kind?

(Before I delve too deeply into this topic I want to make sure I give full credit to Jason Baker of www.digicate.ca. His blog “Groupon Challenges for Vendors as Seen By a Customer” was the spark that got me thinking about this blog, and I highly recommend checking out his thoughts on Groupon, as well as the rest of his excellent writing.

And by the way, if you’re not following Jason on Twitter yet at www.twitter.com/@jason_baker then you don’t have your finger on the pulse of social media in Vancouver).

Groupon has been on everyone’s lips lately thanks to their recent rejection of a buyout offer from Google in order to grow the business towards an IPO. The group-buying service has generated a ton of buzz recently, and has actually cracked the “Mom” test*; if your Mom is talking about something that’s happening on the internet, it’s safe to say it’s burst onto the mainstream.

While their penetration into the world’s consciousness makes them an attractive avenue for marketers, it feels necessary to point out what seems to be getting lost in the noise – Groupon is not for every company. Yes they are a fabulous method of driving traffic to your business, but before you jump in with boh feet it’s important to ask yourself “is the typical Groupon customer the kind of person I want to do business with?”

The critical point for me is laid out in Groupon’s portmanteau company name: “group” & “coupon”. Yes, essentially it’s modernized the archaic practice of clipping coupons (PS, if my wife is reading this, please don’t be insulted that I mock your cave-womanish coupon clipping. Please continue cutting out the diaper offers). Coupon shoppers’ most distinct attribute is their price-sensitive buying patterns; they buy what’s on sale, and tend to shift from brand to brand depending on the daily deals.

Does this sound like your ideal customer? For many companies it just doesn’t make sense to chase a customer who is driven by thriftiness. Let me share two real-world examples that I think illustrate where Groupon works, and where it doesn’t. And although I reference them here, I think the examples apply to all the other similar services like LivingSocial etc.

Groupon Done Right

A few days ago I spied an offer from a local winery giving couples half off a wine tour and lunch. I like this offer because while the tour will likely attract the kind of frugal folks I mentioned above, it will give the business a chance to expose new people to their core product – the wine. They’re not discounting the wine, they’re simply lowering the velvet rope to trying the wines via the tours. An in-store coupon might get them to try it once, but the memory of a nice afternoon spent in the vineyard could be enough to create consumers for life.

I can see other businesses where this initial “taste” of service could encourage people to try more later: personal training sessions, spas & hair salons are all good candidates for success. The key is to have a product you know is superior combined with a stand-out experience, and once people have tried it they’ll be hooked.

Groupon Done Wrong

At the other end of the spectrum we have a Groupon that a local hockey store tried a few months ago. Purchasers paid $50 for a $100 credit to the store, effectively doubling their buying power. The trouble is, a hockey stick purchased from one store is essentially the same as one purchased at another. There is no reason to buy at one over another except for:

  • A: Convenience (lots of staff, close to home etc.)
  • B: Service (more knowledgeable staff, better customer support)
  • C: Price

All the Groupon does is reduce C – if your A&B aren’t vastly superior to your competition, what reason will a customer have to come back when your Groupon no longer applies?

I would argue that this particular hockey store has lower than average convenience, and higher than average service, so essentially they break even with the rest of the competition when price isn’t involved. If there’s one lesson I learned in my experience as a marketer it’s that you never want to rest your strategy on price, because it’s always a losing cause. All they accomplished with the Groupon was to sell a number of pieces of inventory at cut rate pricing; I don’t think the Groupon had any effect in creating repeat customers.

It’s Not For Everyone

I’m not knocking Groupon, because it’s definitely a good fit for many companies; it’s just not for every company. If you’re selling an easily substitutable product (one that doesn’t have any unique features) I don’t see a ton of value from Groupon unless you’re using it to strategically clear out a big chunk of inventory (say, blowing out last year’s stock).

The ideal Groupon client needs to have some kind of draw for repeat customer more than just price. Better service, better product, higher convenience, whatever it is, it should not rely on the customer’s wallet, but their heart.

*all credit to Bill Simmons for the “Mom” test. Works on pretty much any phenomenon

1 Comment

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One response to “Groupon Attracts Customers, but are They the Right Kind?

  1. Wow, thanks for the kind words and link to my blog. Much appreciated! Great post.

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