It’s hip, it’s trendy and all the cool kids are doing it. Marketers commonly refer to “it” as the power of group buying and several social media sites are capitalizing on its profitability.
The concept has been around for years – you gather a group of people to purchase tickets to an entertainment event, a block of hotel rooms for a wedding reception or company health insurance coverage, and as a result, you all save some money.
Social media sites like Groupon, Living Social, Travelzoo and Yelp are partnering with local businesses to offer deep discounts to attract new customers and drive sales. After months of anticipation, Groupon officially launched in Des Moines on October 25, 2010. According to an article in the Des Moines Register, there are more than 30,000 people signed up in Des Moines and about 400 more jump on the discount-bandwagon every day.
Here’s the scoop: participating businesses run a one-day deal offering at least a 50 percent discount on their products or services. The business sets a “tipping point” and X number of people must buy-in for the deal to be on. Groupon groupie’s use “social media peer pressure” to promote the deal via e-mail, Facebook and Twitter to encourage others to buy-in.
As an added incentive, each Groupon member has a personal referral link to share with their friends. If someone joins Groupon within 72 hours of clicking on your link, you will receive a $10 referral credit within 24 hours of their first purchase. Users can refer as many people as they’d like and credits do not expire. It’s a win-win situation for both the user, who accumulates referral credits, and the business who reaches a larger audience.
If the “tipping point” is not reached by midnight, the deal is off and no one is charged. Businesses don’t pay Groupon to run a Daily Deal, but they do keep a portion of the revenue if the deal is on.
The company’s website claims Americans have purchased 15,280,111 Groupons and saved more than $660,694,359. The site provides case studies and testimonials from business owners raving that Groupon raised their company’s profile and attracted first-time customers who became loyal clients. The site also states that 97 percent of participating businesses opt to run repeat deals. And based on the specials offered thus far, it appears businesses can dictate their own “fine print,” e.g., black out and expiration dates, only valid within X mile radius of Des Moines and other stipulations.
There are a few things to consider before you sign-up for a Daily Deal:
What’s the profit margin on your product or service? Can you afford to offer a large discount and only keep a portion of the profits?
What’s the appropriate “tipping point” for your Daily Deal? Set realistic sales expectations. The goal is to encourage new customers to test drive your product or service, and the deal is only “on” if enough people buy-in.
Can your inventory and staff accommodate a surge in business? You don’t want the town buzzing about the poor customer service they received or a product that is back-ordered for 6 weeks.
Is this the right time to reach your target audience? The holidays are right around the corner, would your product or service make a good gift? Would it be more beneficial to wait until Valentine’s Day or the kids are on summer vacation? Daily Deals fill up weeks in advance, so act quickly if you want to capitalize on the holiday buying frenzy.
Is the corner office a stickler for measurable results? Then Groupon is a dream come true. When you run a promotion, Groupon provides data detailing how many people were exposed to the deal, how many bought-in and the total revenue generated. As an added bonus, you’ll also be able to track how many people redeemed the deal.
Groupon is a great way to generate buzz about your business, jump start sales and increase foot traffic. But I hate to break it to you Cinderella, the deal expires at midnight. The effect of any one-day promotion is temporary and it’s not a replacement for a strategic marketing campaign. Social media tactics, like Groupon’s Daily Deals, should be integrated into your creative, media, public relations and research efforts to build on the success of a one-day promotion and achieve your long-term marketing goals.