Online Marketing: GroupOn or GroupOff?
There’s a new kid on the block, and he punches above his weight. He’s called Groupon and he’s got an offer for you. But does it make business sense to take it up?
So What is Groupon?
Groupon is an online voucher service that offers its subscribers a chance to purchase deals online at a large discount. Deals are sent out daily to a selected city or UK-wide as the ‘National Deal’. Deals run for 24 hours and are paid for up front when purchased. The deals only run if a certain number are bought ensuring a guaranteed volume for the vendor.
The Groupon Model
Groupon allows free propagation of a deal to its users base, essentially offering you its platform to advertise for free. This deal is only activated at a certain volume, guaranteeing you a minimum order return. However due to this ‘low-risk’ model Groupon takes a lions share of your revenue of 50% which may stretch your margins to breaking point. Groupon offers a simple calculator to estimate this return, but its worth taking this with a pinch of salt.
Contrast this with Google’s Adword Model:
Adwords, works on a Pay-Per-Click basis charging only for users who visit your site. The cost of each click is decided by a bidding system, meaning in theory, successful or popular terms will cost more.
Once a visitor reaches your website its up to you to sell to them. Conversion rates will depend heavily on your business, keyword terms and with any online selling budget should definitely be included to optimize this process.
Conclusion
AdWords moves your expenditure earlier into your marketing cycle and puts the emphasis on you to convert these prospects into sales. Though initial costs may be low, long term you will still be living on a conveyor belt, which will require spend to maintain.
With Groupon you may negate the risk factor, but you pay a high price for that security, sacrificing both your offer and Groupons 50% share. Groupon suits a certain business model and contrary to general perception, should probably be treated as Marketing and not Sales Expenditure. This puts it squarely into competition with your AdWords budget and due to the nature of the 50% model is probably unsustainable for anything other than an irregular marketing promotion.
So What Can you Earn from Groupon? It very much depends on your offering. If you are considering running an offer here’s a few points to keep in mind:
Build your offer carefully. For example, instead of offering £20 discount on a bill, offer £20 discount on an element of a bill, like food. This way the beverages will maintain their margin.
Maximize horizontal marketing opportunities. Once someone walks in with a Groupon it’s your job to maximize your income. Make sure they pass more value to you and claw back your profit over an extended service or additional product.
Ensure your service generates repeat business. If it doesn’t then you’ll need massive margins. Ensuring visitors return to pay in full is a sure fire way to use Groupon effectively.
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