$100 concert tickets for $50? Yes, please! It’s obvious why Groupon is a bargain shopper’s best friend — but what if you’re sitting on the flip side of the table? Is it a good idea for your business? Before you answer, let’s first break into the Groupon vault.
How it Works
The Groupon website is full of clever “How it Works” videos, but to actually get the scoop you have to pick up the phone, navigate the automated system, and connect with a real person. Here’s what my conversation with Groupon revealed:
Retailers are advised to offer their product or service at a deep discount (50% off or more). For each deal that sells, the consumer pays the total to Groupon up-front. Groupon pockets half of that sale; the other half is disbursed to the business owner in three installments spread over 60 days.
Let’s do the math and break it down:
The business is ultimately selling its product or service at 75% off — a steep discount by any measure. And yet, Groupon has folks banging down the door to get on a waiting list (4-6 weeks long in our experience).
So, when does it make sense to hop on the Groupon bandwagon, and when should you steer clear?
Scenario A: I’ve opened a new hair salon and I’m looking to get the word out.
Even though you might take a hit selling a half-off haircut, you’ll gain exposure for your business and may be able to up-sell with additional salon services.
Groupon makes sense for a new business as a grand opening offer. It can also work for retailers trying to clear out slow-moving inventory or service providers hoping to fill downtime (for example, a restaurant hoping to boost its weekday romantic dinner crowd).
Scenario B: I run a high-end clothing boutique. We rarely have sales because our customers are willing to pay full price.
Verdict: Hold your Groupon horses.
If you have a luxury brand or can sell your products at a higher price, there’s no need for Groupon. If you’re looking for more customers, why not offer a friend-referral system that earns store credit for your loyal shoppers instead?
Luxury brand or not, Groupon doesn’t make sense for any business that can sell its product/service at a higher price point. Also, if you have low profit margins, you may not be able to offer such steep discounts.
What’s your experience with Groupon, as a shopper or as a business owner?
Image credit: Techland
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