Does an Effective Marketing Strategy Include Living Social & Groupon?

Posted by Skip Quast on September 11, 2013 at 3:59 PM

half price marketing

Wikipedia defines Marketing as the process of communicating the value of a product or service to customers, for the purpose of selling the product or service.

When discussing Living Social and Groupon, consider this: Generally the offers on these discount deal sites are 50% off.  So a $20 certificate would sell to the customer for $10.  Then Living Social and Groupon usually take 50% of the remaining $10, leaving the business $5 for a $20 offer.  In all fairness I know that Living Social has taken as low as 30% in the past for ”great deals”…so I am sure this happens elsewhere at times.

So from a marketing perspective, do you feel that selling your product or service for 75% less than what it normally costs creates value?  It often can produce sales.  But value?  I don’t think so.  In fact, it can hurt more than it can help!

In these scenarios, you have now made $5 for $20 worth of product or service.  Let’s look at the pros and cons:

Pros:

  • The customer could spend more than the $20 leading to additional sales and potentially creating a profit.
     
  • The customer is new to you and will be so delighted with the product or service that they will return as a regular customer spending money at the “regular” price.
     
  • The deal is trackable, and you can measure this form of “marketing.” And it only costs you if a customer buys AND redeems the deal.

Cons:

  • More customers than expected could buy your offer, making fulfillment a logistical nightmare (especially if they all come in as the offer is expiring) and in the process you provide a poor customer experience, which would then negate one of the positives from above.
     
  • Consumers who use these sites are discount shoppers.  Should we expect that your product or service will change their habits?  Who is to say they will return to you if there are new half price deals coming out every day for your competitors and now your product is full price?  Not to mention many of them will wait until your next deal.  I personally know many people who do just that.
     
  • The experience of your regular customers could suffer. They will hear about the deals and wonder why they are paying full price when they are loyal, repeat customers. And then depending on the business and amount of traffic this generates, the experience for these loyal customers could suffer because of the influx of new customers…and you could end up losing them in the process.

Many good business people have heard the story of Nordstrom and the strategy for how they have built their business.  They claim that 90% of their business comes from 10% of their customers.  These customers are not the ones waiting for the half yearly sale to shop…or looking for online coupons.  They are the people that love the experience and the product and shop there for that reason.  These are the customers you want…and the ones you need to build your marketing strategy around.  

Other forms of marketing or advertising offer no guarantee of sales.  However, consider taking the money you are losing with on-line deals and ADDING it to your general marketing mix.  The best marketing strategies are the ones that build value by focusing on the benefits of your product or service.  With online deals, your primary USP (unique selling proposition) is half price.  That is it!  Businesses who have used these on-line deals will tell you their biggest challenge is “converting those new customers into regular paying customers.”  They say that is extremely difficult. 

The comeback by Groupon and Living Social is that you are branding your company to the hundreds of thousands of email subscribers.  But I’m not so sure that’s the type of branding I’d be interested in for my company.  If they didn’t buy your half price deal how will you ever get them to buy at regular price??? 

The word “but” has been used often in this article…and that’s how I feel about Living Social or Groupon as a marketing vehicle.  You will sell product but will you establish new, repeat customers?




Tags: Trends, Marketing strategy, skip quast

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