DMN3 Blog

Deal-of-the-day group purchasing sites like Groupon are sprouting up like weeds. Should you use them as part of your online marketing strategy? Only if you are prepared to do two important things to make the online promotion successful.

This is a two-part post on the question of whether your business is prepared to take the steps necessary to optimize the eventual return on investment (ROI) of an online offer made through these sites.

While Groupon and Living Social are today’s brand leaders in the group purchasing marketing niche, others are trying to copy their success. After all, there is nothing unique or proprietary that would prevent anyone else from duplicating their business model. Some sites are copying the model on a local level, e.g., Houston Chronicle’s Daily Deals, while others are looking for specific niches that they can serve with the model. One example is BlackboardEats which offers restaurant deals selected by their staff.
According to Groupon itself, there are more than 500 copycat sites around the world.

Google Offers: After being rebuffed by Groupon with its $6 billion dollar buyout offer, Google is in the process of testing its own deal of the day offering. It is called “Google Offers.” Google sees it as part of a larger strategy to bolster its share of the market for online advertising for local businesses.

No doubt with its clout, brand recognition and ability to provide exposure across Google ad networks as part of the deal, Google will quickly rival industry leaders in this online marketing space.

Not Just for Small Local Businesses: As Groupon, Living Social and other sites have grown in the number of subscribers (cities like Chicago may have more than a half million Groupon subscribers), many businesses have been overwhelmed by the response. The net result has been a negative experience for many businesses, especially local small businesses.

The Group Purchasing sites are responding to this issue. One response has them turning to larger brands and companies which can handle the volume they produce. The promotion coupon deals offered by these sites have evolved from offering a sizable discount at a restaurant in a local market to offerings by major international brands delivered across many markets.

Medium and Large-Sized Businesses Now Being Targeted: The first international brand to experiment with group purchasing was The Gap. The Gap sold 445,000 coupons using Groupon. Living Social’s Amazon gift coupon deal ended up with 1.3 million coupons sold. It should be noted that Amazon had invested $150 million in Living Social so this promotion probably had as much to do with promoting Living Social than promoting Amazon.

Group purchasing sites are evolving as competition and subscriber numbers increase. They are no longer just about getting customers in the door at a small business in your city. They are now being considered by medium and large companies to market their brands as well.

The question for businesses of all sizes is whether they should use these sites as part of their online marketing strategies. It is not just a question of “yes” or “no” but more a question of whether the organization is prepared to take advantage of such an online promotional offer.

Businesses that use group purchasing services like Groupon can be overwhelmed by the influx of new customers who are taking advantage of the huge discounts offered. Without serious forethought and systems in place, the result of an avalanche of new customers who are there for the “bargain” prices offered can result in:

• Cheapening your brand
• A negative impact on existing customers

If you want to be truly successful in such a marketing strategy you must do two things:

1. Don’t Cheapen Your Brand: Cheapening your brand is not only about prices. Obviously you want buyers to perceive that your non-discounted pricing is a good value. But that’s only part of the equation. You must also have the ability to maintain excellent quality, a varied selection and exceptional customer service in the face of a potential large increase in volume created by coupon shoppers.
2. Have a Customer Retention Strategy: If you are to fully take advantage of the group purchasing promotion offer, you should have a process in place for converting these first-time customers drawn in by the discount promotion into “long-term” customers. You need customers who will make purchases from your business that are profitable for you.

In my next post on this subject I will go into more detail about these two issues. Stay tuned…