In posts (1), (2) e (3), we analyzed the key value drivers of Groupon offers for merchants using theoretical models and Excel simulations. Here, we collect the practical handbood with theTop 10 Value recommendations for merchants:
01 Evaluate the profit marging
of your business before launching a Groupon offer: this is the single parameter that influences most the final net present value of profits. The pre-offer investigations must be more precis the lower your margins are and the higher your variable costs (e.g. restaurants);
02 Optimize the parameters of your Groupon offer. The more your profit margin is thin, the lower the subscriber acquisition cost (SAC)
that can be sustain before going red. Reduce the SAC acting on:
- the bundle price before discount:
create packages difficult to unbundle whose total price is greater than the sum of the prices of its components in order to increase remaining revenues after the discount. Customers are sensitive to the final price after the discount and to discount magnitude, while they are generally less critical of pre-discount price (like in “Outlet”). Be careful not to overdo this, due to offer comparability for “existing customers”;
- Commission fee requested by Groupon: do negotiated fee imposed by Groupon, by having more awareness of Groupon effectiveness for your type of business. Knowing issues in your segment can give more room to negotiate a fee below the usual 50%;
- your fixed vs variable cost ration
and your marginal cost of serving a new customer. The more your costs are largely fixed, or the marginal cost of serving a new client is quite negligible, the less likely is a risk of loss (Spa or Fitness). Conversely, the higher your variable cost, the more you need to assess the economics od doing Groupon, spending more time to investigate how to reduce variable costs of your bundle (eg insert higher margin product in the mix).
03 Analyze complementary offering strategies to raise the revenue in the first customer visit: devise packages to be attractive, but not complete, i.e missing a component which is usually purchased together. This stimulates extra purchases
outside of the bundle to raise back margins. Each business is different: for a spa (wellness) it is possible that clients spontaneously use money saved on another ancillary services (eg, massages). Conversely, a restaurant might need extra care to stimulate customers to buy extras suggesting nice combinations (complementary products) along the offere menu or leaving out the dessert from the package.
04 Influence return rate of your customer . This is the second most effective driver on profit. Don’t leave return decision to customer passively, but devise proa proactive actions such as:
- Collect customer contacts during the voucher redemption (registration): while claiming the discount, customers are more willing to give their email and some data for future contacts!
- Build yourown mailing list of vistors to launch a future direct offer without the costs of Groupon intermediation;
- Focus the value propositions of your next direct offers not on ‘discounts’, but on exclusive proposals around the that differentiates your business (eg, ethnic cuisine, wellness, etc. ..), recovering offert margins but also retaining customers interested in you ” concept not on the discount;
- Test and ask for open feedback about the first experience to test what worked, and who or how many will return;
- Profile and segment: many new contacts coming are an opportunity to test the profile of your ideal customers and decide on further offers with Groupon!!
05 Calculate the Customer Lifetime Value (CLTV) of your Groupon offer in the way we showed in previous posts. You will have a single synthetic index
incorporating your profit margins, the SAC and their rate of return. This will give you confidence to negotiate
with Groupon knowing the worst conditions
acceptable to launch an offer for your specific of business.
06 Limited ‘open’ offers: try to negotiate a limit of the maximum total number of coupons on sale. Remind you’re investing early in acquisition costs with the hope of future cash flows frome repurchases. A negative offer could hurt, but also an unexpected successfull offer may require more cash for working capital than your availability! Salespeople Groupon have no incentive to remind the “limitation” mechanisms – leaving the merchant the burden of financing the successes for both!
07 Evaluate if your ‘service capacity’ is limited, and think about “yield management” to encourage coupons redemptions during low demand periods. This will prevent to fill all your available capacity just with Groupon customers, which means rejecting full margins customers during the peaks thus lowering the period profits.Devise your offer validity long enough to “temporally spread” the redemptions. The temptation to reduce the duration to have some benefit by expired unused coupon is balancede by having too many Groupon customer In a shoert period. Yield management ideas could be: coupon with different prices for use during on-peak and off -peak, coupon valid only in off-peak periods, etc.. Nothing new, but bear this in mind before negotiating a standard Groupon proposal.
Also ensure that you’re prepared to increase your service capability in peak time: the periods immediately after the start and just before the end of a Groupon offers shows increases in demand up to 4x or 5x that of periods no-offer periods. These peaks may affect service quality, not so much for Grouponers, but with damages into your already loyal customers base, thus killing your recurrent profit source.
08 If your ‘business is already well underway, evaluated the impact of cannibalization: try to estimate the penetration of Groupon users on you existing customers through surveys (eg questionnaires, email, etc). Propose direct offers exclusive to your list of “loyal clients” before launching a generic coupon to Groupon prospects: direct campaigns, personalized offers with thematic events will stimulate purchases by loyal customers and reduce the possibility that they get angry for deep discounts on similar packages purchased at full price.
09 Simulate and inquire before negotiating: You do not need to do Groupon at any cost because it is the last trend, and there is no need to accept unilateral conditions without negotiating with Groupon sales. Evaluate the impact of proposed conditions before closing the contract. Ask Groupon sales the returns of simlar offers made by business like yours. If Groupon does not have bullet-proff cases for your area and business, you should feel comfindet to negotiate lower fees and preserve valuable margin points that accelerate your payback.
10 Evaluate the potential of your own digital marketing
before outsourcing to Groupon: if you are a new exercise which must quickly acquire customers, Groupon is the best option. If you just want to increase your saturation are you sure you have considered all the opportunities of your direct marketing: have you already created lists of customers? Have you propose them your in-house events? Have you launched “bring a friend” offers to existing customers? Have you facilitate viral marketing on Facebook? The time required to boost ‘your own’ marketing is rewarded by the better long term return on investments, acquired marketing knowledge and focus on your most profitable segments.
In short, Groupon is powerful but must be planned properly and there are many aspects that merchants must analyze before launching their Grouopn copupon: only by doing this your profits will be really guaranteed!
Published by Carlo Arioli