Monday, February 7, 2011

If you used Groupon to generate business, will people come back? And will they pay full price?



“Every business has different needs,” Alexis [Jon Alexis, president of TJ’s Fresh Seafood Market & Catering] said. “We are so proud of what we do, that we are happy to give someone $30 of free seafood if they will come back again. Groupon is kind of like a nuclear bomb, you just have to use it once, and use it well.”
Created in 2008, Groupon has worked with more than 30,000 businesses in North America, according to spokesperson Julie Mossler, with the vast majority being small business owners.

Uptal Dholakia, associate professor management at Rice University in Houston, set out to test the effectiveness of promotions for small business owners in September 2010. His study, “How Effective are Groupon Promotions for Small Businesses?” He surveyed 150 businesses that ran and completed Groupon promotions between June 2009 and August 2010. Of the respondents, 66% said the promotion was profitable.

The 32% of respondents with unprofitable promotions reported significantly lower rates of spending by Groupon users beyond its face value (25% vs. 50%) and lower return rate to purchase again at full prices (13% vs. 31%).

Based on the general objectives of promotions or discounts, it’s meant to introduce potential buyers to your products, company, etc which if executed right could lead to loyal customers. The thing about this though is that discounts attract mostly bargain shoppers who most likely do not intend to be loyal. They move from one retailer to the next. Or in my case, sometimes just buy substitute brands when what I want is not on sale. Have you gone to a grocery store to buy a box of Christie Oreo cookies only to pickup another popular brand of cookies that happens to be on sale. However there are brands that command a great amount of unquenchable loyalty, until they fuck up big time at least.

Apple products are rarely promoted at very aggressive discounts, unless new models are coming. People pay premium price for iPhones, Nike, Rolex, Lexus, etc. Tim Hortons is also a brand that owns the coffee section on people’s mind in Canada.

So the suggestion to small businesses, how do you acquire business without giving products away or competing on price? Learn from Tim’s. I have never seen them or others in the industry compete on price. They compete on consistent: good customer service, fresh goods, cleanliness, comfort, safety, and experience.

In addition, the biggest mistake retailers sometimes make is lowering price one time and thinking they can get people to later pay full price. Your products better be what I call “REAL”, Rare, Exclusive, Addictive and Loved if you want to stop lowering prices.

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