How to Avoid the ‘Groupon Effect’ With Your Next Sales Promotion

It sounds like a no-brainer: Offer dramatic discounts through social media, and watch as new customers pour into your business.

They’ll come — that’s been proven. But as plenty of Groupon clients found out during the company’s heyday, a glut of new business at a heavily discounted rate can be too much of a good thing.

Posies Bakery & Café in Portland could no longer make payroll after losing $10,000 offering products at less than half their worth.

When Chicago Bagel Authority’s staff couldn’t keep up with the demand of the 10,000 Groupons it had sold, angry customers flooded the establishment’s Yelp page with bad reviews.

Need a Cake had a similar experience: It had to hire 25 temporary staff members to bake 102,000 cupcakes sold through its Groupon promotion and ended up losing 12,500 euros on labor and distribution.

The horror stories are enough to make any business shy away from offering similar deals, but with careful planning and good execution, online promotions don’t have to overwhelm your business — and they just might make a bargain hunter return with an open wallet.

Sweeten the Deal for You and the Customer

Offering online promotions can attract new customers and increase your reach, but you don’t want to reward “free seekers” who will never return. The trick is to make sure you’re not giving something away without the promise of something in return or diminishing the value of your product or service in the eyes of loyal customers.

I recommend a two-step checkout process:

  • Create a compelling offer that will attract customers, including the penny pinchers who might not have given your business a chance otherwise.
  • Create additional offers after customers take advantage of the first. Let’s say you run a coffee shop. You can get new customers in the door by offering $1 off any drink, but when they come in, offer them a donut for an additional $1 off. If a customer upgrades to a breakfast sandwich, take off another buck. This persuades the consumer to continually upgrade because of the greater perceived value. It also gives new customers an incentive to experience more of what you have to offer, which increases the likelihood that they’ll return.

How to Run an Effective Promotion

Offering amazing discounts is a wonderful way to get new customers in the door. But as many Groupon clients have discovered, it’s also an easy way to get in over your head. Set some guidelines before you offer online promotions.

  • Create an offer on a higher-margin item. This helps zero in on your target customers and helps you convey value without going broke in the process. You can bolster your safety net even more by offering a percentage off, rather than a dollar amount.

For example, if you want more lunch business on a particularly slow day, offer 50 percent off lunch that day, rather than a broad $4-off-any-product coupon that can be used any time.

  • Limit the number of promotions you will accept. This creates a sense of urgency for the user (she knows she has to be among the first 100 in the door to get the deal) and protects you from running out of products or having your staff overrun.
  • Include product and labor costs when determining the discount. Calculate all costs on the back end, but don’t make it obvious in the deal. No one wants to be offered “free refills” on soft drinks. But if there’s something you can give away cheaply without much work from your staff, it might be worth considering.
  • Train your staff on the promotion. Regardless of your deal, make sure your staff knows how to process the deal when new customers come in. Customer service can determine whether or not deal lovers become repeat customers.

Today more than ever, people are savvy shoppers. They comb local ad sheets and online sites like Groupon and RetailMeNot for deals, and they’ll take advantage of whatever you offer. These deals can be great for growing your business — as long as you run your promotions strategically. If you’re as savvy as your customers, your business will reap the benefits in no time.

About the author

Former web developer Adam Root has worked in interactive development and design for Fortune 500 companies, midsize agencies, and startups. Adam is now the founder and CTO of Hiplogiq, the developer of social media marketing tools SocialCentiv and SocialCompass.

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