08/29

Is Groupon Evil?

In too many cases, Groupon and various Grouponalikes are destroyers of value.  I’m going to tell you why, then explain why I think deals driven in association with media outlets like yours can do better.

Today in my email I find a deal for “71% off a 4-class yoga pass” for $13.  After subtracting the cut to the deal aggregator (which was not Groupon in this case), the studio walks away with just over $1.50 for the same class which normally brings in between $10 and $15.

Anyone who thinks it’s a smart strategy to drop your prices to almost nothing and crowd out people who are paying full rate with people committed more to deal-surfing than to yoga needs to have his head examined. If a yoga class is worth $1.50 today, then why in the world will it be worth $10 tomorrow?

Do these bargain deals introduce new consumers to the merchant?  Or do they reset the value of what the merchant provides to near-zero, while putting your business on the cut-rate treadmill with every other one in your category such that “full-rate” essentially ceases to exist for any but the most stalwart customers.

Think about it.  Groupon has a database of people who elect to receive deal emails because they want deals.  And this is the group to whom the deals are sent.  This would be like printing coupons in the ’80′s but sending them only to folks who requested and always used coupons.  Presumably, the point of coupons is to introduce new customers who eventually buy the item at its regular price.  While there have always been coupon addicts, coupons exist because they are about trial, not about a heavily-discounted way of life.

Small wonder then that the data in at least one study indicate that 82% of Groupon merchants were unhappy with the level of repeat business their Groupon promotion brought in.  Of course they’re unhappy.  Groupon is not about repeat business, the kind of business every business needs to survive and thrive.  Groupon is about Groupon’s business.

This is why the biggest categories on Groupon tend to be small, independent operators and personal services – tours, hair removal, spas, yoga, facials. Less sophisticated marketers, more needy of cash today.  Very few big brands have dabbled with Groupon and their like, and when they do it’s viewed more as a publicity stunt than any serious marketing tactic.  Why do the big boys and girls stay clear? Because heavy price discounting is bad for the brand, pure and simple. A brand is all about value, and dropping the price dramatically kills that value dead.

There are exceptions, of course.  If you can bring in the price-shoppers for one item and introduce them to a different (non-discounted) category of items that may work.  Also, if you have many locations across a market rather than one (which is not true of the average yoga studio or hair removal shop, by the way) then it makes some sense, since a new consumer will be more likely to repeat-visit if the merchant is next door rather than a 30-minute drive away.  Also, if the items being discounted aren’t that expensive to begin with (I’m talking to you, local yogurt shop chain), then the chances of repeat business are much greater.  Finally, new developments in micro-targeting and linking offers to times when business is particularly slow offer great potential for more promising value equations for the merchants.

Still, one has to ask:  Since value is about more than price, why not try to add value by adding value rather than subtracting price?  I just bought a book for my Amazon Kindle – and it’s actually more expensive than the hardbound version.  But I want it on Kindle and I want it now.  That’s value worth paying extra for.

Now, how can deals attached to media entities be better than Groupon?

Simple.  These deals cast a wider net.  Not a wider net among coupon-fanatics – a wider net among potential customers.

Groupon reaches only those people who want cut-rate Groupon deals.  A media company’s deals reach a portion of those people, too – but they also reach a large number of other potential consumers who are not part of the deal treadmill.  That’s the advantage of linking a deal to an over-the-air buy.

If you want the deal fanatics that Groupon provides, play with Groupon.

If you want people who value a deal along with folks who may also want a long-term full-rate relationship with your brand, then pick the deal driven by a media outlet which includes an over-the-air buy.

Then measure your conversions, Ms. Business-Owner:  Which type of deal resulted in more repeat business?

I’m going to bet it’s the one driven by big media.

So deals can be good things after all – for consumers, clients, and media companies alike.

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  • http://www.facebook.com/profile.php?id=13801906 Andrew Steeley

    Hey Mark, I’ve seen a couple of stations partner with NeoFill (www.neofill.com)…what do you think of that program and that kind of partnership? 

  • Thegreattonymariani

    Mark, that is a brilliant take on Groupon et al.

  • http://www.markramseymedia.com Mark Ramsey

    There are lots of partnerships like these, of course. What I think is that somebody needs to focus on what constitutes value for the client, not simply the consumer. What I also think is that radio needs to better communicate why attaching a tower to a deal is better than a deal alone, no matter how deep the database of members.

  • http://www.markramseymedia.com Mark Ramsey

    Totally appreciate that, thanks!

  • http://koolaidredalert.blogspot.com Wm_Tucker

    The lesson to take from Groupon.com is the value your station can add to its customers.  For Groupon’s customers, the traffic generated by a (one-time) price incentive *is* the value.  Any radio station can similarly add value for its customers, presuming it accurately identifies its customers and knows its resources.  

  • http://www.markramseymedia.com Mark Ramsey

    And, as Seth Godin memorably told me, if radio stations had been spending the past few years gathering the email addresses of their listeners, then radio would BE Groupon.

  • MaryBeth Garber

    Well said.  The first thing a savvy media director explains to a client about launching a new product or service is that it is as important to reach the people who are not likely to purchase the product, or are not likely to purchase in the near future as it is to go for the immediate sale.  The more people who are aware of and impressed by or approve of the product, the easier it is for potential buyers to be comfortable purchasing the product or service.  And the wider the net for future converts to purchasing the product/service.  Micro targeting a product that is unfamiliar to the public at large is seldom likely to be as profitable or successful as developing widespread awareness then reinforcing with more targeted advertising.
    Groupon can send a business to bankruptcy while over-the-air broadcast can build it current and future sales. 
    Now — smart stations will help advertisers micro target smart deals to their most likely purchasers within a station’s listening base while building a broader base of awareness among all listeners.  That builds new revenue streams for both the station and the advertiser.

  • KMR

    My group of stations uses Neofill and it is highly successful. We limit the number of deals sold to our listeners, creating a sense of urgency (and preventing a flood of “deal fanatics” for the client). The client receives an integrated campaign of commercials, live liners, streaming, and web over a two week period of time. The commercials have nothing to do with the deal, the client owns them. “It’s more than just an online deal; it’s a multi-media advertising campaign.”

  • http://www.markramseymedia.com Mark Ramsey

    Why do the commercials have nothing to do with the deal? You mean the deal isn’t part of the spots?

  • KMR

    We use the live liners to push the deal. After the deal goes on sale they recieve a commercial schedule. The copy promotes their business, not the deal.  

  • Anonymous

    “Unless
    you can demonstrate your benefits, all you are left to compete with is
    price.” — Jeffrey Fry

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