People are asking about Groupon, Google Deals, LivingSocial and the many other online deal sites in recent months because of their perceived ability to generate hundreds of leads for any type of business with little effort and low upfront costs. They seem to be the best online opportunity to generate sales.
But savvy business owners are realizing that their financial and marketing interests and those of these social deals websites are not always in line with each other. Many early users of these sites have discovered that poor planning can turn an online offer through these sites into one of the biggest mistakes they make as a small business.
Based on feedback from small business owners and general marketing best practices, the following questions have been put together to help business owners and marketing managers ask the right questions before using Groupon and the like:
1. How Much Are You Willing To Spend For A New Customer? Business owners should never expect to break even on the first sale; the first sale should be looked at as a step in the door. In most industries, you will make your money on the lifetime value of a new customer. It is very important to know what a typical customer is worth to you, what the hard costs of your product and labor are, and then to expect a significantly lower lifetime value for those who are driven to your business because of a coupon. Businesses who use these sites often end up discounting the cost of their product or service by 50%, and then they give away 50% of the money that is received to the online deal website. Make sure that your profit margins can absorb the discounts you agree to. Many of the success stories from online deals sites chose to discount less than the sales rep wanted, which kept out the coupon cutters and resulted in more serious, interested customers using the service.
2. How Many Customers is too Many? Most businesses have capacity to handle a certain number of customers at a time. When that threshold is met, they are forced to turn customers away, potentially alienating new customers and loyal, repeat customers. If not properly planned for, too many customers can hurt a business. Most of the online deals sites will allow you to cap both the date range to redeem the coupon and the number of coupons that can be "sold," but you will often have to push the sales rep for these features.
3. How Will You Retain Your New Customers? Many users of sites like Groupon are "web coupon cutters" who will never come back to a location once they have redeemed the coupon. This is especially important if your business is intensely local, like a coffee shop or local small business. The online deals site will be attracting visitors from areas that may make it extremely inconvenient for customers come back more than once. Build loyalty programs that will be interesting to your new customers if you want to see this influx of new business stick.
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