Looks like the online promotions space is thriving. More and more special offers sites are being created. Google even went and developed their Google Offers product after they failed to buy Groupon for $6 Billion – that’s right $6 Billion. So there must be some value in these promotional tools right? Otherwise businesses would stop using them and Living Social sure has a large advertising budget for themselves.
Let’s look at Groupon. So if you have a $50 product/service, that you sell for $25 – (it has to be a 50% discount so it is a “good deal” to get approved) and then you get 60% of the $25 and Groupon keeps 40% of the $25. You are really selling a $50 product for $15 because of the discount and the Groupon percentage – but they are opening relationships for you – and for the most part giving you an opportunity for customer relationship. So is a $35 acquisition cost on a $50 product/service worth it? Only you can answer that, but you should run the numbers. Based on that, I can tell you, it is going to perform close to what it would cost you with advertising dollars spent at that level (but you can optimize for performance over time with advertising).
You will have some instantaneous Branding and recognition, not to mention customer traffic over the 6 months the Groupon/Living Social is valid. You will always have some existing clientele who will always buy this so it doesn’t reach only new people – unless you are just opening your doors in the market. This is unbeatable for the new business.
However, I have yet to see a second offer from the same business so you only get to use this once – so pick your timing – if you are not a new business try to use it to boost a slower period and make sure you can handle the demand during the 6 months without losing your shirt.
There is also the FREE money aspect of this. Like any rebate that is offered, you get a % that don’t use it. So if we use the first example again, you got $15 off each sale and that 25-30% don’t end up using it, that is FREE money for you to keep, which doesn’t hurt and softens the blow – but then you don’t get that all important “new” customer relationship either so it is kind of a double edge sword.
Here is a great case study. We had a client use Groupon in December 2010 – a single location Hot Yoga Studio as part of launching their business and they sold almost 700 at $39 a pop. That is incredible for a small business that is just getting going. Now, it gave them some cash in the door and created some relationships. They considered it a huge success.
My take, if you are opening a new business or want to launch a new product or want some quick cash – put an unbelievable offer out there through one of these and you should get some traction. Also learn from one before you try to do another – Set up some tracking on your website that sees what these people do that come to your website via this campaign and track their habits.
Be prepared to use it as a loss leader to get access to new customers and get “legs” underneath your new product or location. Also make sure your ongoing marketing turns those new relationships into repeat customers so you can make some money back and it creates success for the long term. That might take a second promo for them for another visit – but you don’t have to give Groupon their 40% this time.
Let us know if you have had success with one of these services – please give location and product/service sold and if it has been successful in generating repeat business.