Groupon: Local Area Advertising

If you were already willing to discount your products and/or services by half, and of the remaining half of the expected revenues, only take in 25%, then maybe Groupon might be a decent advertising channel for local area advertising. But, if you think that 75% of an expected sale is way too high of an acquisition cost of new customers, you may just be among those who believe that Groupon is bad for business.

Like any advertising strategy, you should weigh the pros and cons of using the service, as well as the ROI and costs involved. For example:

Pros:

• Can bring in robust traffic to a storefront in a short period of time
• Consumers love Groupon and can't wait to tell their friends about it
• Customer pays for the opportunity of using a voucher instead of receiving a comparable offer in the mail for free

Cons:

• Groupon voucher offer language must be carefully constructed
• Groupon vouchers apply to one person only and cannot be redeemed for the benefit of the group; Customers have to read the fine print to see what they are really getting
• No lasting relationship with Groupon (no business directory listing, no customer reviews)
• Customers become Pavlovian in response to deep discounts for your products/services, meaning, they will only shop with you if a coupon or reward is involved
• Very high cost of acquisition of new customers who must have an extraordinary experience in order to become a repeat customer or spend more (without coupons) with your store
• Overuse of coupons can cause brand erosion, loss of operating margin, and decreased long-term profits
• Your business, existing employees, and in-store technology may not be able to handle the immediate influx of new customers (e.g., your hidden costs will rise because of this; adding new employees, training them on how to redeem Groupon coupons, increased staffing management issues) and quality of customer service or first-time customer experiences could suffer as a result
• You may, as a business owner, feel fleeced from the whole Groupon experience
• And, there's no unique technology nor business model that separates Groupon from its competitors

Alternatives:

• Entertainment Book, RelyLocal, PayBack Book, Goldstar Events, the "blue envelope" local coupon mailer
• Start your own customer email list and offer a monthly newsletter; Constant Contact starts at about $15/month; Vertical Response offers pretty decent rates and does postcards too
• If you're a professional services business owner, after hours business mixers, Chamber of Commerce events, and local/regional networking events through Meetup.com are excellent places to meet new customers