Day twenty-seven

Group-buying coupon sites – are they really a good marketing tool?

Yesterday I talked a bit about why manufacturers issue coupons.  In our internet age, though, things are changing rapidly and every week I get an invite to a new group-buying coupon website or another place to find coupons online, which are very different from the traditional coupons.  With huge discounts off products and services (sometimes hundreds of dollars off), they are in a completely different league than the $1 off Ocean Spray coupon I used a couple of days ago.  And with the group-buying companies usually taking an extra 50% of the revenue from the coupons bought, what are the businesses left with in the end?

The Globe and Mail are in the midst of publishing a really interesting four-part series on the group-buying landscape that I would recommend reading to anyone interested in the topic (the fourth part is to appear online tomorrow).  From what I understand, signing up a business to issue coupons on sites like Groupon.com and Teambuy.ca means advertising and getting new customers in the door.  Even if the businesses aren’t making very much money off the product or service, they are gaining a lot by getting their name out there.  Groupon has over 550,000 subscribers in the Toronto area – so that’s 550,000 potential customers seeing your company name.  That doesn’t include the word-of-mouth advertising that could come next.

Unfortunately, I’m not entirely convinced that these sites will bring repeat customers.  From my experience, the coupons I’ve bought from group-buying sites are for places I already regularly attend (ie. restaurants, theatre), places I was going to try anyways without a coupon (although it did speed up the process of me actually going), or things I only bought because it was such a high discount and I’m not sure I would buy again for full price – even if my experience was great (organic food delivery).  A restaurant I used to work at never offered discounts because they said “discount prices bring discount guests”.  I’m wondering whether that is true.  Although these group-buying coupons get customers through the door once, will they actually come back for a second or third time and pay full price, or will they shop at a competitor/wait for the next deal?

Chairman of an Atlanta-based marketing firm, Al Ries – who wrote a very interesting blog post on Ad Age – doesn’t think so.  He believes that those group-buying shoppers will just return to Groupon (or whichever sites they are using) to wait for the next bargain.  He worries that, although effective in the short-term, coupons in general might not be the best long-term strategy:

It’s easy for a company to check sales and redeemed coupons to decide if its couponing program is financially successful or not. But what happens in the long term? How many customers will a company lose tomorrow because they stocked up on sale products today?

Or how many customers that regularly buy with coupons (or Groupons) will buy full price?  As Mrs. January, a hardcore couponer and money saver, said on Day thirteen, “I will buy whatever brand I can get the cheapest.”  So although the coupon (or sale) might encourage a customer away from a competitor once, does it really make them a loyal follower?  If not, does once really make up for the potential loss of revenue that comes from people using the hugely-discounted coupon?