6 cases when it makes sense to run a Groupon

24 Apr

There has been a lot of discussion of late on the pros and cons of running Groupon offers for businesses. Here are five cases where running Groupons make the most sense:

  1. You have a new business. If you’re a brand new business and don’t have existing connections in the market, Groupon can help introduce you to your local community. A good example of this is the Globe, a pizza place in Portland that recently opened in a troubled location. A new business also avoids a significant cost that many businesses forget when doing the Groupon math: margin lost on existing customers who instead use a Groupon, turning a full-price sale into a 75% off sale.
  2. Your business has a subscription model or high lifetime value. This category includes gyms, yoga studios, flight schools. Many of these businesses already regularly run introductory specials, such as the first month for $30 (regular price $120). Converting a onetime flight lesson into thousands of dollars in ongoing schooling makes a lot sense. In cases such as gyms and yoga studios, the incremental cost of serving customers is small. Even in these cases, you need to be sure to cap the deal at a manageable number. You don’t want overcrowding that frustrates your loyal full-price customers.
  3. You have fake pricing to begin with. Many businesses have fake pricing. If you shop at FTD, furniture stores, mattress stores or the Gap and pay full price, you’re a chump. The regular discount levels at these sorts of outlets run 30%-50% off. Starwood Hotels offers a 50% off certificate that you can buy with 1,000 Starpoints. But the discount is valid only off the “rack rate,” not the prevailing rate. In 12+ years, I’ve only found the “discount” to be valuable once or twice. Even then, it amounted to 5-10% off the regularly offered rate. If you have fake pricing, Groupons can work for you. But don’t push it too far — FTD wound up not smelling so good when Groupon customers discovered that in order to use their discount, they had to go to a special site which had even higher prices than FTD’s regular site.
  4. You have a third-party really footing the bills. Magazines and newspapers fit into this category. The real goal here is to sell eyeballs to advertisers. For newspapers, auditors will count it as paid circulation if the customer pays even one cent per issue.
  5. You are running an event with excess capacity. If you have an event like a theatrical performance, concert, etc., with a fixed cost of production and you’re unlikely to sell out, Groupon or other deal providers can help fill the audience.
  6. You are going broke anyway. A Groupon can be the ultimate Hail Mary. With Groupon, you get your share of the deal within 60 days. Maybe the extra cash flow will help you smooth over tough times. If it works, great. If it doesn’t, well, you were going out of business anyway.
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6 Responses to “6 cases when it makes sense to run a Groupon”

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  1. Quora - April 25, 2011

    5 cases where it makes financial sense for businesses to run Groupons…

    For version with links, see http://redesignmobile.com/2011/04/24/5-cases-when-it-makes-sense-to-run-a-groupon/ There has been a lot of discussion of late on the pros and cons of running Groupon offers for businesses. Here are five cases where running G…

  2. Shop talk: Square and Groupon | reDesign mobile - May 10, 2011

    [...] repeat business. As a new business in the area, it was important to reach an audience. (See 5 cases when it makes sense to run a Groupon.) “Most of the people that purchased the Groupon didn’t know we were here and they live [...]

  3. What are the most notable aspects of the Groupon S-1? - Quora - June 2, 2011

    [...] the Groupon." Interesting — risk management strategy? — eliminates my fifth reason here: http://redesignmobile.com/2011/0…Metrics I'd like to see:Similar market growth.Email open rate trends.This answer .Please [...]

  4. Groupon S-1 Filing (June 2011): What are the most notable aspects of the Groupon S-1? - Quora - June 2, 2011

    [...] the Groupon." Interesting — risk management strategy? — eliminates my fifth reason here: http://redesignmobile.com/2011/0…Part of Groupon's appeal is simplicity of the offer — typically good on anything. But this [...]

  5. Round Up of Best Groupon Articles « ClearMechanic - June 3, 2011

    [...] – 5 Cases When It Makes Sense to Run a Groupon [...]

  6. Yelp advertising is a rip-off for small advertisers | VentureBeat - February 6, 2012

    [...] as Groupon’s toughest critic, I can list scenarios in which it makes sense to run a Groupon. I cannot think of any scenarios where I would advise businesses to advertise on Yelp at these [...]

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