Sunday, June 26, 2011

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Groupon

With nearly a million hits daily, it is unparalleled in creating awareness.

However, it just may be a double-edged sword for small to medium businesses (SMEs). Here are some points to consider before hopping on the Groupon bandwagon.

READ: The Groupon Backlash: It’s the Business Model, Stupid
1. You may lose more money than you expect

It all seems too good really – increased exposure, more customers and better sales. Well, things seem peachy until see the aftereffects.

Traditionally, if the consumer pays less than $10, Groupon will take 100% of the money. While percentage splits between Groupon and the company is negotiable, it is usually in the range of a 50-50 split.

The selling price of goods usually priced to cover product and overhead costs with a slight mark-up for profit. Deals on Groupon are typically discounted by 50% off the original retail price.

With a 50-50 split with Groupon, you are looking at earning only 25% of what you usually earn per transaction. You may end up needing to fork extra money to cover selling costs. This is especially true for SMEs selling products and F&B outlets.

This was what happened to Jessie Burke, who detailed how her Groupon promotion cost her $8000 from her own pocket. Read her experience with Groupon here: http://posiescafe.com/wp/?p=316. This post spread like wildfire among customers, and is a warning to all small business owners.
2. It attracts the wrong customers

The fairy tale ending of Groupon sales personnel is that new customers will come into the store, be amazed and become loyal customers for life.

READ: Why Groupon Leaves a Bad Taste in Restaurants' Mouths

In reality, it’s less magical. Most of the customers that visit your store are only there for the discount. They are not especially interested in becoming a loyal customer. In fact, you will probably only see them again at the next Groupon offer.
3. Short-lived exposure

While it cannot be denied that Groupon deals can generate a lot of attention for your business, it’s a temporary high. The intense flow of customers will only last a few days before it is business as usual.

During this period, it is likely that your business will be overwhelmed with new customers. However, most businesses cannot handle the sudden influx of customers. Your service staff will be stretched to the wire, possibly leading to less than stellar customer service. New customers may see your store at its worst rather than its best.

READ: http://techcrunch.com/2010/09/16/groupon-photography/

Instead of gaining new and loyal customers, they may walk out with the impression that your store is not worth visiting a second time.

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