Is Groupon Good or Bad For Retailers?
This social coupon craze has become a big thing. For retailers, the question is whether it’s a good thing or bad thing. Sites like Groupon and the many clones that have sprung up (the local newspaper, the Post Dispatch, now has a similar service) can certainly drive traffic into stores. But many are not prepared for the onslaught – creating negative customer experiences.
And these services are also creating what we call the “Famous Barr syndrome”. (For those not familiar, Famous Barr was a Midwestern U.S. department store chain, since absorbed into Macy’s). They had “big sales” and offered large discount coupons so often that people became reluctant to shop there unless there was a current promotion. Sites like Groupon do the same thing, training people to expect that they can get a coupon for almost anything.
Coupons have of course been around for years, and have been available on the Internet since the earliest days. But now there are so many services and websites offering discounts, the customer is becoming trained to never, ever pay full price. This pricing model works well for some businesses, not so well for others.
And whether a retailer or other merchant makes money depends on many factors, such as if the new customer spends more than the face value of the coupon; how many current/existing customers purchase a coupon – and now pay less for something they paid “full price” for in the past; what percentage of the discount customers become regular customers; and the cost of delivering the additional sales created from the coupons.
The truth is, when you charge some (current, satisfied, loyal) customers full price…and other (brand new) customers half off, you make some people happy and others unhappy. And you are making the wrong category of customer happy!
Regulars may be upset because they feel they’ve overpaid; the discount customers are happy, though it’s likely that many will not return to pay regular price.
When you decide to offer a daily deal, you are potentially training your existing customers to wait for the next coupon. And research shows that brands which discount themselves can easily do damage to their image through aggressive discounting. Does that sound like a recipe for success?
Think before you join the coupon herd. Bottom line, busier does not always mean more profitable.
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