Sunday, June 5, 2011

Groupon: Marketing Boom or Bust

                 Ever since the emergence of the deal-of-the-day group coupon sites such as Groupon and living social, in 2009, users have tuned into their email daily to find out the latest deal:  30- day gym membership for $30, $20 worth of food for $10 and $39 for $72 worth of theater tickets.  What consumers aren’t tuned into are the terms of the offer the business must accept to extend an “amazing” deal.  Groupon takes a commission (between 30-60%) off the deal once enough consumers have purchased it and the rest is left up to the business to wait for the influx of new customers.  Although Groupon’s website makes it sound foolproof and presents numerous case studies of organizations that have won the new customer jackpot, they fail to mention the extreme downsides: loss of profits and declining employee morale. 
                According to Groupon’s video explanation, they utilize “collective buying” and social media outlets such as twitter, facebook, and email blasts to spread the word of new deals and attract new customers.  This business model appeals to businesses because they anticipate that the new customer base will become loyal, long-term, users.   What they don’t envision is the damaging effects that this new customer base can have on their business and employees.
                After Groupon promotes a product or service and a business reduces the price by 50% or more all they have to do is wait for the influx of new customers to buy and use their offers.  However, what many business fail to take into account is the “type” of consumers these offers attract.  Many consumers, in fact, will not become long-term, loyal fans but rather accept the deal for what it is at the time- a bargain discount- and never return to the store.   In addition, by offering these discounts, business risk tarnishing their brand identity in the eyes of their actual loyal customers who become disgruntled with this new customer base who buy solely because your product or service is “cheap.”
                Think of how this will affect future sales:  after offering this discount, the product or service offered will not sell as well at the regular price simply because it was offered at a discounted coupon.  Also, this new customer base will dwindle as long as there are no new offers.  How are businesses able to draw a profit when the slash their profits by 50% or more to be attractive to Groupon-addicted users?            
                Finally, what effect does Groupon have on the employees who are at the front lines of the deals?  Many businesses fail to think of the effect the increase in customer visits will have on employees during the duration of the deal.  Typically, Groupon users are attracted to the business for the thrill of the deal and felt entitled to special treatment because the Groupon was only offered to a select number of users.  Customers drawn to the location through Groupon were also typically less inclined to tip because they felt it was included in the price of the Groupon itself.  As a result, workers tend to resent the new customers and the extra time they have to work to carry out a deal.  The mood of disgruntled and overworked employees often is visible to customers and can affect their overall experience.
How can this new model of product and service promotion really be better than the tried and trusted more traditional forms of marketing? Is Groupon really worth damaging the morale of employees who are the face of one’s business?  Businesses need to ask themselves if these post- Groupon effects are gaining a few new potentially loyal customers.

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