Consumers flocked to coupon offers in the past two years as the recession put a dent in our buying power. But, coupons really are not for us; they are ultimately for the gain of marketers that offer them. This small but significant point has been lost on many businesses that have experimented with social couponing services like Groupon. Many businesses have gotten burned because the revenue hit taken and expenses incurred to offer deep discounts to attract customers is not always recouped.
A recent study from Rice University found that nearly one-third of businesses running an offer through Groupon say that lost money on their promotion. More than 40% of businesses surveyed said they would not run an offer on Groupon again. These figures are alarming for the future of social couponing. The medium holds great promise because information about coupon offers can be transmitted through permission marketing and word-of-mouth, channels that are much more cost efficient than traditional channels used to deliver coupons.
Rather than shy away from social coupons because of a bad experience or because of hearing about bad experiences other businesses have had, marketers should take the following steps to manage a social coupon campaign:
1. Do the Math – The expenses associated with a coupon offer can be calculated on a per unit basis when evaluating an opportunity. Revenue sharing with a service like Groupon, cost of goods sold or given away, and any additional labor costs to handle increased demand must be considered when making a decision to participate in social couponing. Realistically, Return on Investment should be based on incremental profit, not revenues. What is the additional profit a promotion brings in once all expenses are deducted? Social coupon offers can be capped; set a maximum number of offers to sell to manage profitability of the promotion.
2. Prepare Employees – One of the problems businesses have had with demand generated by a Groupon offer is that employees can become overmatched in meeting the influx of customers. And, in the case of service businesses, many employees have found that Groupon customers are not always the best tippers, basing tips on the deeply discounted price rather than regular price. Companies should take steps to increase service coverage, train employees on handling service encounters with new customers attracted by a coupon , and monitoring employee satisfaction during peak business periods.
3.Think Long-Term – A coupon can get customers in the door, but other factors will determine if they return. A great customer experience, which is highly related to #2, can demonstrate the value offered and persuade customers to return without the incentive of a coupon. If employees can be persuaded to view these customers more like a new friend than a nuisance, the initial service encounter can set the stage for repeat customer visits. Also, businesses should seize the opportunity of a visit by first-time customers to invite them to expand the relationship by opting in for permission-based marketing in the form of email or by friending a brand in social media.
Social coupons may fall under the category of “spend money to make money,” but when properly executed and managed they should not lose money and hopefully set the stage for developing repeat customers.