The One With Groupon & Your Business

I have had it with people who have nothing good to say about the social buying business, like Groupon. I have had the opportunity to dwell into the details of this new industry, and it was nothing short of being fascinating.

Of course, the recent bad rep of Groupon – from its IPO chaos to disgruntled customers to vocal naysayers – didn’t help matter.

So I am going to put forward my take on Groupon on other similar social buying sites to everyone.

Fact: Groupon helps your business.

Also fact: Most businesses do not understand how to make it work with Groupon.

As someone who has more than my fair share of Groupon experience, I can honestly say I have more insights than most people.

Here they are.

Businesses should NOT think of Groupon as a revenue-generating channel. Yes, doing a deal on Groupon will get you upfront cash immediately (Groupon buyers pay first before getting their vouchers), and will bring you new customers through the door. But the simple economic model of this kind of deal, after you calculate your base cost, commission to Groupon and other associated fees, there is not much margin to be made. Businesses will then think Groupon is nothing but a scam, and it is not profitable to do a deal with them.

Yes, it is NOT profitable. Because it is NOT a profit-making channel.

If you flip the coin of think of Groupon as a marketing channel, perhaps then you have a different perspective. Let’s say you spent HK$20K on a print ad. The print ad may bring in some customers to you, but there is no real proven way to track that metric (long story, but that’s not the point of this post). But if you spend the same money on a Groupon deal – say, $15K for your base cost, $5K for Groupon’s commission – you know exactly how many customers are walking through the door because of the deal.

Now, these customers are not curious onlookers. These are people with spending power, who already know about you (they read their Groupon deal before buying), and interested enough to buy vouchers to try you out. In other words, they are engaged customers.

So what’s the logical next step? When they walk in, dazzle them with your products and services.

However from my own experience, Groupon customers are treated like bargain hunters not worthy of the best service. I was given the worst possible seat in a restaurant. I was given only a specific time to have a meal, weeks away, because I am a Groupon customers.

That’s where you are doing it wrong. If I get good food, good service, good experience, I will remember you, and one day return. I might spend more than my voucher value, because I liked what I see.

In short, Groupon customers like me should be treated like a VIP, not as someone at the bottom of the feeding chain.

You may have also heard about businesses who have burnt by a Groupon deal. It is true such things have had happened. But you know what? The situation could be avoided.

Let me give you a practical example. The Groupon deal on Shake ‘Em Buns at Central. At the end of the deal, a total 1,102 coupons was sold.

Let’s do the maths. Shake ‘Em Buns, bless them, is a tiny burger joint along Wellington Street. On a good night, their place could at most house some twenty patrons. Let’s say each of this patron spend an hour for dinner, and each of them will use a coupon each. So in one night, perhaps they can entertain fifty Groupon customers.

So, that means it will take close to a month to entertain the entire Groupon horde. Taking up space of other full-price-paying customers, exhausting the hell out of their miniscule wait staff, a severe hit in the quality of food, prolonged miserable margin…

How did that happen?

It is important for businesses to know where to draw the bottom line. It is not good enough to specify the minimum number of vouchers to tip the deal. You must also know how many vouchers you are willing to take on. Each coupon bought means a marketing (and often, sunk) cost to you.

Do your calculation right, maintain a reasonable margin, bring in the number of new customers you can comfortably handle.

And when you do decide to do a Groupon deal, please for the sake of God, be honest. Recently I bought a coupon for buffet for $120+, which was purportedly more than 50% off its usual price. But on the day I went for the buffet, there was a big sign right outside the restaurant advertising the same buffet for $140+.

I was furious not because of the measly $20 I saved through Groupon, but because of the inaccuracy of the advertised offer. The buffet, as it turned out, was good, but my first impression of the place has been tarnished. I may be happy with the food, but I am decidedly not happy with the restaurant.

The social buying business, up to now, is poorly understood. My experience with Groupon has far more misses than hit, but instead of blaming Groupon, I put the responsibility on businesses who fail to understand the real nature of social buying. Yes, businesses need time to understand social buying because it is a new game.

But it is also here, and now. Groupon and other similar daily deal sites will not go away anytime soon. So learn up, be wise, and make daily deals work for you.

Meanwhile, excuse me while I look through my stack of coupons and find the next Groupon deals I want to try. And when I walk through your door… surprise me.

P.S.: On the other hand, as a connector between consumers and businesses, daily deal sites like Groupon should do more than just closing the deals and counting their commission. There’s doing business, and there’s doing business responsibly. But then again that’s an entirely different discussion.