For many businesses, the coupon service comes with hefty caveats. Offering a deal through Groupon can bring in a torrent of new customers, entrepreneurs say. But some complain that the customers are mostly bargain hunters who don’t come back unless there’s a new deal on the table. And some businesses grumble about giving Groupon a big cut of sales from coupon purchases, about 50%, on average.
Now a growing number of entrepreneurs are finding ways to better manage their coupon offers, and the customers that come with them. Some are pushing Groupon for a bigger slice of revenue on coupon sales, while others are reorganizing their operations to better handle the flood of customers. Perhaps the biggest change: Businesses are using Groupon as the starting point of a larger strategy. They use coupons to get customers in the door, then keep them around by offering membership in company price clubs and other deals.
Business owners say this approach does a much better job of building loyalty, and costs a lot less than offering discount after discount through Groupon. At Gelato Spot, a Scottsdale, Ariz., ice-cream seller, owner Thomas Plato offered coupons through the service in April and July. When customers redeemed the coupons, US$10 worth of gelato for US$5, Mr. Plato asked them to join the company’s loyalty program to receive more special offers through text messages. The move, which Mr. Plato devised with marketing firm Cellit LLC, kept customers coming back, he says. And he can pocket all the revenue from the discounted sales, a much better deal than he gets from Groupon.
David Wachs, president of Cellit, argues that small companies need “ongoing conversations” with customers, not coupon offers. Groupon is best used“to drive new customers in their door,”.
Meredith Boggess, co-founder of St. Louis baby-gift company TheInitialBaby.com, r a n 1 4 Group on more customer orders in July 2010 than it did in all of the previous year, she says.
But TheInitialBaby hasn’t run a Groupon promotion since March and doesn’t plan on another this year unless Groupon offers to target customers in a more lucrative market. The plan, says Ms. Boggess, is to let the coupons out there “run their course, and then try and do our best to translate the Groupon clients we’ve gained since last summer into regular clients.”
For instance, Ms. Boggess and her associates have created email lists to target different customer sectors. “We identified items people bought more regularly and offered people on our lists special discounts for those,” she says. Typically, she says, each email blast “generates five to 10 new orders, often more.”
Dana Spinola, owner of Atlanta- based clothing store Fab’rik, says she has another strategy for dealing with Groupon: getting ready for the flood of responses. She recently launched her second promotion through Groupon, and this time, she’s offering shorter redemption periods and hiring more staff.“There is a huge rush at the start, then it will die down and then there’s a rush towards the end before they expire,” she says. “I wanted to keep the promotion period tighter this time to plan sales and events around the promotion more effectively.”
Ms. Boggess of TheInitialBaby says she and her partners were also caught off guard by the strong response to their first Groupon deal. After plenty of late nights and early mornings, they streamlined their operations to better handle the workload. They also tweaked their offers to get a better profit margin. Their original deal gave US$40 in credit for US$18 in purchases; later deals gave US$35 for US$17.
Some entrepreneurs also say it pays to do tough negotiating with Groupon. Mr. Plato of Gelato Spot says hardball tactics, such as playing Groupon against rival coupon firms, paid off. In his first deal with Groupon, he says, he got 60% of the revenue instead of the usual 50% or so.
Groupon says the split in revenue depends on a set of factors, including the size of the market, the number of vouchers available and how many they anticipate selling. Beyond that, a Groupon spokeswoman says the company will work with businesses to come up with the best coupon arrangements for them “as long as the fine print isn’t too restrictive or unappealing.” (Wall Street Journal)