Retailers and Group Coupons - Should you participate? One Gal's Opinion

There is a new game in town and the name of that game is Group Coupons.

Group Coupons is an email subscriber based system of offering deep discounts on a product to consumers ONLY if enough people purchase the coupon.

The major player in this market is Groupon. Groupon started in 2008 and has really taken off in late 2009 and now 2010. Their success has bred a host of new players such as Grooster, Good News, Living Social and Ethical Deal.

The group coupon value to the consumer is clear – half price or better on goods and service. The value to the retailer is a little less clear.

If you have a good, say jewelry, and you normally sell it for $50, the likelihood is that you paid $25 for it. Now you offer a Group Coupon of “$50 of jewelry for $25”. Your coupon company takes half the $25 collected from the consumer and you get the other $12.50. That is a clear loss of $12.50 to you.

When faced with the math, Group Coupons look like a bad deal for retailers.

But you can mitigate that loss. What if you only offer your highest margin product? You paid $10 for Object A. You regularly sell it for $80. You coupon it for $40 – you get $20 and you still make $10.

You could make a decision to go for the loss. You know the true value to your company is that the email went out to 40,000 or more consumers and then it got posted on Twitter and Facebook and the email got forwarded around to non subscribers. None of these people ever knew you existed and now they do.

Yesterday I got the Groupon for a cheese shop. I had a conversation at lunch with a friend who works in my building and we were talking about food and he said “I got this thing forwarded to me today about a deal on cheese”. I said I knew and then we talked about the cheese shop and expensive yummy cheeses. That same day, I went to the beach after work with another friend and she said “Did you see the Groupon today for the cheese shop?”. Two friends who don’t know each other both mentioned it to me and now we’re contemplating a cheese tasting party. Now that’s effective email marketing.

If you choose the loss, put a reasonable limit on how many coupons you are going to sell – say 40 or 50. I’ve seen a few of the spas hit 1400 coupons and I know it will take them ages to service all those people. Will the experience be good enough to bring that consumer back again? How will the coupon activity impact the spa’s current clientele? Will everyone wind up with rushed appointments and difficulty booking their next appointment even a month in advance?

For Service businesses, I recommend a limit of 250 coupons. You know you can service that number without upsetting your staff or your current clientele.

Restaurants seem to be the big winners in Group Coupons. Like the Entertainment Book, these Group Coupons get consumers to restaurants that they would not normally go to. Diners are going to spend more than the value of the coupon and the margins on food and alcohol are pretty good. Put a limit on the number of coupons that can be redeemed per table and add an expiry date for the coupon and you are good to go.

You may also want to factor in the “unredeemed” coupons. If you sell 1000 and only 700 get redeemed, it could make up for the loss. A friend said that she can’t remember all of the Groupons that she has. She’s got “unredeemed” written all over her.

In summary here are my recommendations for retailers and Group Coupons:

There is a huge value in the email/viral marketing and getting to new consumers who have never heard of you.
Retailers with low margins should limit their coupons to 40 or 50 – high margin retailers, the sky’s the limit!
Service based businesses should limit their coupons to 250.
Restaurants should limit the number of coupons accepted per table and apply an expiry date.
“Unredeemed” may mean money in your pocket.