Groupon – business saviour or killer?

UK retail sales suffer the biggest fall for at least 16 years according to the Retail Consortium and KPMG. UK retail sales figures for March 2011 fell by 3.5% on a like-for-like basis compare to March 2010. It is the worst drop recorded since the Retail Sales Monitor was launched in 1995.

So you may be thinking to sign up with Groupon or one of their clones to boost sales. A word of advice – DON’T!

Groupon and their ilk, for those not familiar with the concept, sign up members to offer them their daily ‘deals’, usually at a local or city level. Their members buy the deals and are given the vouchers to redeem at the retailer, restaurant or local business. Groupon will then pay the retailer less their commission (often as high as 50% + c.c. costs) usually in 3 tranches over the lifetime of the offer.

What’s wrong with that you may think? You get a lot of new customers and sell a lot more of your products/services.

Well lets consider what you actually get.

Firstly, many groupon members will only buy when they get a discount or a voucher. They believe that if you can offer a discount of 30% then you were making too much in the first place and will never contemplate returning unless they get another coupon. They will not spend more than necessary. For example if they bought a £25 voucher for £10, don’t expect them to use it against a £50 purchase. They will spend £25 to the penny.

Secondly, you will upset your existing loyal customers who are prepared to pay the full price or worse still, some of your customers are Groupon members and end up getting discounts on what they were prepared to pay full price for (and may consider you a discount store in future).

Thirdly, you may not be able to cope with redeeming the vouchers causing trouble with the purchasers and Groupon. For example Groupon sold over 1000 1/2 price massages and the parlour  would need to work flat out for 3 months redeeming them and would not even be able to service their regular full paying customers.

Let’s take me as an example. I am and have always been a Gap customer. They’ve always been good for jeans and the basics etc. However, over the last year or so they’ve had 30% off 2 week promotions every 3 months or so. I’m not daft, so I wait for the next promotion to do my shopping (and looking at the queues at the tills, so do many others)

Never forget that if you drop your margins from 50% to 40% you need to increase your sales by 25% just to stand still! Even more if you need to take on additional staff to deal with it.

Once you start on the slippery slope of promotions/vouchers outside normal sale periods it’s very difficult to get back your credibility.

OK, you weighed it all up and you still want to go ahead and give Groupon a try? Then, think carefully about the terms and conditions you will offer.

1. Set expiry date
2. Redeem in quiet periods?  Monday to Thursday – not available Bank Holidays?
3. New customers only? Good for new business but alienate existing customers?
4. Limited number of vouchers? – First 400 only for example.
5. Only 1 or unlimited vouchers per customer? Do you want regular customers buying a years supply?
6. What can it include? Does 1/2 price meal include drinks or just food?
7. Can it be redeemed against anything or do you want to exclude gift vouchers for example?
8. Can it be tailored to be used against slow moving lines and exclude fast sellers?
9. If you have more than one outlet can you offer it for the poorer performing outlets only?
10. Refer to paragraph 2 – DON’T

Tony Heywood – Gilcrest Services Ltd
Retail Troubleshooter
Business Turnaround and Recovery

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