Discount sites like Groupon, Living Social, TeamBuy and SwarmJam are proliferating like crazy these days.  But is it really a win-win-win situation?  The customer wins, the coupon company wins, does the business owner?

Bob Phibbs aka the Retail Doctor offers up an interesting Groupon case study.  Business owners beware…what you are about to read may scare the pants off you!

Can Groupon be a good marketing tactic?  I would say yes, but with extreme caution.  I think the more pressing question is a much deeper one than deciding whether or not to use the “Couponing” marketing tactic.  In my mind, it’s almost a desperate move.  What is the health of your business overall if you need to rely on such a tactic?  If you are experiencing a decline in sales it’s time to do a check up.  A SWOT analysis is the correct prescription to your woes.  Tale the time to assess your internal strengths and weaknesses, and external threats and opportunities.  Before pointing out looking to blame…take a look in the mirror.

As a former restauranteur, I can say that I have used a similar tactic…called the Entertainment Book.  My offer was essentially a 2 for 1 dining offer.  Did it work?  Yes.  Did it cover my costs?  Yes.  Was I as profitable?  Yes, but not as much as I would have liked.  The year that we stopped using Entertainment Book, our sales were the same if not better and my margins improved.

Here are my top things to consider as a business owner before using the “Groupon Tactic”:

• Does your business have a HIGH repeat customer base? Think restaurants, in demand services.
• How does it impact your financial and human resources, can you control the flow of redemption?
• What effect does this have on the positioning of your product or service?  Are you training your customers to discount you?
• Can you get these customers on a list to market to them later?

The bottom line is research and plan your overall Marketing Strategy…before you execute any marketing tactic decide how it fits within your end goal.

Checkout, Phil’s post here:

Groupon Review: Worst Marketing For Your Local Business – Case Study

My Groupon post yesterday dealt with potential pitfalls for business owners considering the use of Groupon as a marketing strategy.  I referred to couponing as the crack cocaine of advertising because of the quick hit nature and the fade effect…thus the need to increase frequency of use.

Interestingly enough, Seth Godin penned an article this morning (High Margins, Groupon and the magic basket for price differentiators) on how you could use Grouponing without conditioning customers to be price shoppers.  Seth calls this the magic basket:

And the magic basket? Tim Ferriss just finished offering more than $1600 worth of high-margin items in a basket to people who bought 30 copies of his new book. The marketing partners get trial among a group of people who are each paying more than the cost of a single item in the basket, these customers are proving they’re not among the ultra-cheap. And the products are quasi-aligned, appealing to the same sort of consumer. Is there a cheaper way for one of these companies to reach this precise person? I’m not sure there is.

Imagine taking this even further and leaving out the book part. A basket of aligned items, all high margin, none from the market dominator, each holding out the possibility of future business… You could do this with an 8 pack of computer games or phone apps, or drink coupons from a dozen bars in the same town, or even clothing for guys size 38. Alex has experimented with this at Swagapalooza. I’m betting that there’s quite a lot to be done in becoming this market creator/differentiator/middleman.

Seth also comments on the inability to collect data as a key missing ingredient. He also suggests that despite the inability to collect data this method of advertising could be an opportune way to develop a community. Read Seth’s full article here.

Focused on Growing Business: Groupon turns down amazing offer.

If you had an offer to buy your company for $6 billion would you take it?  The rapidly growing business, Groupon did the unthinkable by turning down Google’s offer.

Started in 2008, Groupon has taken the world by storm.  Only 29 years old, Andrew Mason CEO of Groupon figured out how to become the fastest growing company ever. One of the keys to growing business success is solving people’s problems often the end result is sales.  In Groupon’s case they’ve satiated 2 fundamental wants or problems:

1. creating and generating measurable advertising programs for growing businesses,
2. reducing buying risk for consumers doing business with a particular merchant

The results for this relatively young Chicago based growing business start-up are staggering:

• they’ve helped consumers save $846,618,797 on their purchases,
• sold almost 20 million coupons,
• became profitable within 7 months of operation,
• on track to surpass $500 million in 2010,
• boasts a valuation of over $1 billion, achieving this number faster than YouTube,
• starting in Chicago they are now based in 100’s of cities worldwide and offer services in over 20 countries,
• they add over 3 million subscribers every week.

How does Groupon work?

It’s quite simple make it low risk for everyone involved.  For businesses it doesn’t cost anything to list with Groupon…they get paid by selling coupons…I mean Groupons.  But the deal doesn’t come to fruition unless a certain number of customers buy the coupon.  Groupon makes money on a percentage basis of every coupon sold.  Groupon relies on it’s visitors/ subscribers to get the word out using various social media platforms like Facebook, Twitter and Blogs.

Is Groupon a good deal for a growing business?

Customers love a great deal so it’s an automatic win for them.  Businesses on the other hand must consider a multitude of other factors.  Does offering a coupon fit within it’s value proposition?  I always referred couponing as the crack cocaine of advertising…sure it gets people through the doors but at what expense?  Numerous arguments can be made for this model of marketing and advertising and I’m not suggesting that it’s good or bad.  There have been examples of Groupon Nightmares on how this tactic has had an opposite effect on growing business.

The Groupon Story a couple take-a-ways on growing business

The great thing about Groupon and Andrew Mason is that he possesses something that we all have inside us….an idea.  The difference? Follow through. What ideas do you have to follow through on your growing business?

The biggest win for Groupon?  It’s not the money…it’s the data!  Google says it’s worth $6 billion…Groupon says it’s worth more (Groupon Google Deal OFF).  For the sake of math, assuming 20 million subscribers that’s $300 per subscriber.  How much are your customer’s worth?

To read more about Andrew Mason check out Forbes article titled Meet The Fastest Growing Company Ever.

Or check out Andrew Mason’s interview with Charlie Rose.