Thanks to iMediaConnection for publishing this first.
True confession: I am a group coupon addict.
For me it's about the whole "insider" psychology. That I am in on a really special offer, thanks to my personal network. I never thought I'd find anything involving a screen that's more fun than last instant bidding on eBay, but group couponing is it.
What it is
If you're not in on this particular trend yet, let me give you a nutshell explanation. A company puts a great offer (like 50-75 percent off) up on one of the couponing sites, and makes the offer conditional on enough people accepting it. If you're an interested consumer, you actually buy the coupon (for example, paying $5 for $10 worth of store merchandise credit) and then publicize the offer to as many people in your network as possible, so that enough people indeed do buy it. When the hurdle is crossed, the offer is yours. If not enough people decide to buy the coupon in the time allotted, the offer vanishes.
Mr. and Mrs. America are definitely spreading the word on their favorite offers. This business segment is arguably the hottest in digital at the moment. The largest player, Groupon, has experienced more rapid growth than any tech startup ever. Ever.
That's what's in it for the consumer. But what about for brands? Some early mover brands have seen blockbuster results. Gap, for example, issued a coupon for $25 off a $50+ purchase, and more than 440,000 people bought in. If you factor in the greater than 80 percent redemption rate on the coupons, that's a helluvalot of arses in skinny jeans.
But did they make money on all those rump covers? Gap sells the coupons through Groupon, and Groupon takes a cut, reported to be 20 to 50 percent of the revenue generated. Assuming Gap got the 80/20 rate, Gap got about $11 million in revenue. The key to whether such deals are profitable is the margin on the apparel and whether coupon redeemers spent more than the minimum of $50 each. Spending $50 is pretty easy to do in a Gap, but that doesn't mean people actually did. I suppose only Gap knows for sure.
But getting more than 400,000 shoppers into retail locations is an absolutely remarkable outcome, and one that lots of businesses -- small and large -- have noted with prodigious saliva production.
If you look out into the social sphere for business comments related to group couponing, the tenor is quite positive. Certainly some retailers have noted a paucity of profitability when many customers only shopped to fulfill the coupons' minimum requirements. But most seem happily shocked by the response.
• Some businesses report jammed phone lines
• Others report fast out-of-stocks
• Still others have seen slow days and nights turn into Black Friday clones
Imagine that you own a taqueria. And on your feature day, 350 people come in for chile rellenos. It's a tremendous trial mechanism, and a way to crank meaningful brand awareness -- provided you can offer a great product at that pace and volume.
Who offers it
I cannot hope to list all of the companies that have jumped on this train. But here are summaries of some of the larger and more interesting players to get your search started. One of the big ways these services vary is in the number of local markets they serve. Some may have expanded in the brief time between the writing of this article and its publication date. so rather than listing markets, I have hyperlinked their names so you can see the latest information.
Groupon
The big daddy in the market has well over 15 million members, up five fold from just six or so months ago. Of all of the players, Groupon seems to have attracted the most national brands, though in keeping with the original vision, the consumer experience features a great many small business and local offers. Groupon essentially defined the model others are cloning, and has garnered strong press attention. In its latest money round, the company's valuation was raised to $1.35 Billion. That's with a B.
Homerun
Homerun works to inject more fun and engagement into the space, with special rewards, points systems, levels, and private offers. In sum, more of a sense of participatory community. Private offers entitle members to special deals available only to this most loyal of audiences. They also offer what they call Avalanche Deals – ones in which the price declines as more people capitalize on an offer. By taking the core offering and layering on these additional capabilities, Homerun is working to create a more consistent community with greater long term prospects. In essence, they are injecting game psychology into the process.
Wow.com
AOL http://www.aol.com/ has announced it is entering the fray with Wow.com. AOL has promised some interesting twists, as well as huge potential reach by delivering offers to the vast AOL community. That reach may be a significant advantage for leading national brands or national footprint retailers that need big volume to impact their businesses. The site isn't up at the time of this writing, but it's a potential partner you might want to look into.
Living Social
Living Social is another leading group couponing community. One of their growth strategies is to incent users to socialize deals by making their coupon purchase free if they get three others to buy. Living Social also offers something they call Deal Bucks -- a frequent buying program that rewards people for buying more offers. Using these strategies, Living Social seems a great platform for the most offer-sensitive consumers. It is likely that these people will be strong opinion influencers, given that they have chosen a platform that rewards them for having a big personal network.
KGB Deals
Similarly, KGB Deals offers KGB Cash to reward referrals and purchases. The site also does not require a minimum uptake of coupons to get a deal. Users simply need to buy the offer before the expiry.
Crowd Savings
Crowd Savings has a similar model in that they do NOT require a minimum uptake of coupons in order for consumers to get the deal. The site also makes the case that because its sales team actually lives in the markets it serves, users get an insider's perspective on the best venues and deals in a market.
Dealster
Dealster uses a referral marketing program in its battle to garner industry share. When members get their friends to sign up, they receive a $10 credit for future coupon purchases. It's a great way for them to attract the most highly connected people.
Tippr
Tippr's angle is accelerating discounts. Specifically, their program incents users to share offers by increasing the discount based upon the number of people who sign up.
There are literally dozens of others, and you should choose a partner that has strength in your core markets. Many companies currently focus on the major metros, especially in coastal "blue states", where digital acumen and interest in web-based offers is stronger. But the largest players are now available in dozens of cities nationwide.
When it makes sense
Because of the high discount required to get strong consumer uptake of an offer, it's important to really think out your social couponing strategy before you act. Basic horse sense suggests that this marketing challenge works best for brands with:
• Significant awareness and trial goals: The combination of a hot offer and the social endorsement from the sharing process can drive strong growth in awareness and trial. One might equate the impact with a sampling program except that you're actually earning some revenue, and you're connecting only with the low hanging fruit.
• Businesses trying to reactivate lapsed or infrequent users: A coupon can be a great way to stimulate former users to come back. The key to making this work for your business is a follow up strategy to get these retriers to keep coming back.
• Service businesses: Not to discount the potential value of group couponing for goods sellers, but there are clear advantages for service businesses. In many cases, a service business has lots of fixed costs (people, development, office space, utilities, etc.), with commensurately lower variable costs, because no physical good is actually changing hands. If you have the people and the locations out there, group coupons simply mean additional marginal dollars.
• High-margin goods: At more than 50 percent off plus the cut that goes to the site, you're offering a strong discount with a program like this. While this may make sense for many different kinds of businesses, it's plain that the higher your margin, the lower the risk and the higher the potential payout
• Retail businesses with uneven demand: Lots of national restaurant chains, for example, find themselves packed on Fridays and Saturdays, but slow on Tuesdays. A group coupon for a specific day can fill the seats by driving impulse dining and impacting restaurant choice at the last minute.
• Businesses expanding their retail footprint" By targeting an offer to a city or neighborhood, you can drive awareness and demand for a new location or a new offering exactly where you need it most.
Another consideration to make is cash flow. The sites typically pay their business customers in three installments, meaning that it can take some time to get all of the revenue. This shouldn't be an issue for most brands, but if you're running "dollar in/ dollar out" it's something to keep in mind.
Finally, preparation is critical. The Street recently published highlights from an interview with Utpal Dholakia, associate professor of marketing at Rice University's Jesse H. Jones Graduate School of Business. Dholakia interviewed 150 past Groupon customers to understand how they fared using the service.
So what makes for a successful social-promotion effort? "For the most part, it comes down to expectations and preparation," Dholakia says. Owners who lay the groundwork for a rush of customers do well, while those who don't prepare their employees adequately can face a backlash. Groupon's success in drawing subscribers can also be the biggest challenge for the businesses it features. Not everyone is equipped to handle hundreds of new reservations. One business owner told Dholakia about a receptionist who couldn't handle the deluge of phone calls and ended up in tears.
Conclusions
The Groupon model clearly has tremendous consumer and business appeal. Based upon the dozens of case studies that are circulating, it's plain that the tactic can move the needle on sales and customer counts. By carefully considering your business goals, the dynamics of your business, and your cost structure, you can quickly find out if the model makes sense for you. For marketers who like to dip a toe before they take the plunge, these platforms are geographically based, and it is easy for a national marketer to make an offer in a single region to better understand what they can expect from a national campaign.
Group couponing is powerful, addicting, and a whole lot of fun for consumers. And for the right kinds of businesses, can be just as compelling.
SUCH a good article!
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