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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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