In this gloomy economy, when consumers are remaining frugal and actively seeking out deals and discounts, Groupon has become a household name. Why not? After all, it offers its users up to 90% off restaurants, spas, various goods/apparel and hotels, and the CPG industry has also gotten in on the trend. Forbes has named Groupon as the fastest growing company in web history, and its subscription base is growing astronomically. However, being an avid user of this website myself, I often wonder if it really is an effective marketing tactic for a retailer or manufacturer.
Groupon can definitely be a great marketing option for new businesses as it leads to an awareness explosion which further translates into an accelerated revenue stream. Even if it fails to generate huge profits in the short term, it works out quite well in the long run. Groupon can help sinking businesses as well by triggering a surge in traffic and an influx of revenues.
Though Groupon can be very profitable and increase revenues manifolds for many businesses, it definitely isn’t for all. Studies show that 66% of those businesses which offered Groupon deals were profitable, while 32% were unprofitable. And, 42% said that they wouldn’t run the promotion again.
The major risk of engaging in Groupon is the potential failure to acquire loyal customers and gain repeat business. A huge consumer segment might be just looking for freebies and never come back without a deal. Typical Groupon users can be categorized as economical buyers (who hate to buy anything at full price), penny pinchers (who are obsessed with trying anything and everything they haven’t yet experienced) and coup-o-holics (who consider deals as free money).None of these segments usually are known for their customer loyalty or giving repeat business.
Overall, Groupon can be looked upon more as an advertising tool rather than a marketing strategy. While Groupon takes a huge cut out of the voucher sales from the retailer/manufacturer and consumers enjoy a huge markdown, offering a Groupon deal can be a little overwhelming for many marketers and not necessarily a sustainable tactic in the long run. While many marketers are pondering whether to Groupon or not, it is critical that they have a proper vision and a sustainable objective before they dive into it. Though marketers can earn huge profits and sales by engaging in Groupon like many others, they need to be cautious of giving deep discounts without having a very good understanding of the ideal consumer base they are targeting in the long term.
What has your experience been with Groupon? Would you recommend using this marketing tactic?