Group Buying Offers

18th February 2015

We’re all familiar with group-buying networks, like Groupon and Living Social.

Clearly, these can be a great way to get a LOT of customers to your door in a short period of time, but that is not always a blessing!

You should always think carefully before committing to a tactic like this, because we have seen more than one business brought to the point of failure through oversubscribed group-buying campaigns!

In this post I’ll explore the circumstances when it might make sense to run one of these offers.

If your context matches most of these factors, this could be a technique worth considering.

  1. New businesses
  2. Local market
  3. Repeat custom model
  4. High profit margin
  5. Distinctive customer experience
  6. Quiet times of the week/year

1. New Business

Obviously, if you’re just starting a business, reinventing a brand, or making a big push for growth, you need an injection of customers to get the ball rolling.

In that situation, running a campaign through Groupon or similar could prove a very cost-effective way to get out of the blocks fast.

2. Local Market

Most of the group-buying networks’ models have a geographic dimension, which means you can target prospects by town or postal code.

That can mean this is a great technique if you have a local market (along with local SEO, targeted PPC ads, Facebook Organic marketing, and more traditional channels such as newspaper and radio).

3. Repeat Custom Model

Group-buying can be a great way to get new customers, as long as you can make a profit from those customers.

The most obvious way to maximize lifetime customer value is to have a natural repeat custom model, including…

  • Driving lessons
  • Hair and beauty
  • Spas, massage & relaxation
  • Personal training, physiotherapy
  • Restaurants, bars & puts
  • Food and drink products

Consistency plays a greater role in some of those business models than others. For example, people tend to stick with their driving instructor or physiotherapist, but are less likely to be loyal to restaurants. So, don’t count on repeat business if the market could be fickle, unless you can confidently deliver an outstanding experience that will bring people back again and again (see below).

Frequency also matters. People will go back for eyebrows dyeing or manicures every few weeks, but Botox treatment, for example, should typically only be carried out every six months (minimum).

4. High Profit Margin

In a typical deal, you might be expected to present a 50%-off discount, and the provider will typically take another 50%, leaving you with only 25% of your standard ticket price.

In real money, that means that if your profit margin is under 25% of the selling price, you will lose money on every deal, what’s known in marketing as a “loss-leader”.

Loss-leaders are OK, provided you have a way to recoup the loss over time. For example, supermarkets constantly run loss-leaders on certain headline brand products in order to get shoppers into the store, because they’ll recoup the loss when people buy other stuff.

Other businesses may do the same, where there is a good chance of profitable repeat business. But you’ll need to make sure you make every customer happy.

We have seen businesses struggle to deliver a consistently good service with group deals, simply because they were inundated with requests. If you have a business that requires people to book (e.g. beauty, restaurant, hotel), you should think carefully about how many booking requests you can really handle in a short period, without upsetting the very people you want to impress.

Some businesses with naturally high profit margins, for example those that sell digital products, can confidently run group buying offers with minimal risk.

5. Distinctive Customer Experience

If you’re going to take a hit on your revenue in order to get a customer, you need to be confident that you’ll be able to persuade that customer either to spend more, or to come back for a second visit, so you need to give everyone a great experience.

Always remember…

“The best advertisement for your business is a happy customer.”

But…

“The worst advertisement for your business is an unhappy customer.”

When someone finds a service provider they like and trust, they are likely to keep going back. It really is worth pulling out all the stops to delight every new customer who comes in waving their Groupon print-off. Don’t make them feel any less special, even if you’re not making any money off them.

If you provide a product or service that is available at other places locally, endeavor to make the experience truly unique and memorable, so that your hard-earned new customer will think of coming back to you instead of trying another offer from one of your competitors.

6. Quiet Times of the Week / Year

Some businesses are typically much busier on certain days, or at certain times of year, which can make it difficult to provide a regular cover without draining profits.

Group buying deals can be a good way to keep customers coming through your doors in those quiet times, when any revenue will be welcome.

Case Study

barberAs an example, I recently got a deal for a haircut and wet shave at a local barbers in Sheffield. They have only been open three months (new business), so were prepared to work hard to build that all-important regular client base, and a group buying deal is a great way to get people through the door.

The regular price of the service would have been £24. The offer was for £12, but the business only got £6 back from Groupon.

Obviously, hair treatment is a natural repeat-business model, and the barber was careful to deliver a great customer experience.

However, in this case, it was fine because this is a pretty high-margin service. They use very little power or raw materials, so it’s mainly the barber’s time, which is just about covered by the £6 (for about 45 minutes).

It is also a small business, which means they couldn’t fulfil too many coupons, so they have run a variety of promotions through different platforms totalling about 500, which they could fulfil over a few months.

The promotion stipulates that the vouchers cannot be redeemed on Saturdays, their busiest days, which helps to keep the register ringing on their quieter days (compensating for quiet times).

 

Ben Hunt

About the Author

Ben Hunt

Ben Hunt has over 20 years' experience in web design and marketing, and has written numerous books, courses, and presented at seminars round the world. In 2010 Ben created the world's most complete web design course, and in 2015 founded Open Source Marketing.

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