“it’s a great marketing tool. just not great with making profit.”.

The quote above is from an unnamed business owner and I found it in a recent study by Utpal M. Dholakia, an associate professor of marketing at the Jones Graduate School of Business, Rice University.

The study, an interesting read, states that only  66% of all deals accounted were profitable and that there is a correlation to the deal profitability and high % in findings regarding the following key areas:

  • buying more than Groupon value (50%)
  • repurchasing a second time (31%)
  • running another Groupon promotion in the future (82%)

The major problem to deal profitability was found to be the employee satisfaction factor, which might sound strange but is all too understandable if we bring in mind that most of the Groupon deals are service deals and the way the employees perform determines the service outcome, both in monetary and non monetary terms.

So, what do we learn from this?

If you are to engage in Groupon like deals, do it with a long term view in mind. Quick cashing is risky and maybe not material, after all.

Groupon deals should be part of a marketing strategy for small business owners. They should use them to make known or reinforce their brand, give people a sample of their services and entice them to more, expand their reach etc

This means that these deals should not be offered in isolation. They should be combined with other marketing and promotional tools to yield a better result.

Even the offering itself has to be scrutinized upfont:

  • What kind of signal does it represent? Heavy discounting can easily be taken as a signal of trouble. It has to be applied in a context where the image of the company will remain untarnished.
  • How it can be combined with extra, more lucrative, promotions when the customer redeems the coupon?
  • Profitability is not a prerequisite if one knows upfront what to aim for. The anticipated losses can be budgeted and treated as marketing cost, provided that the deal can create new loyal normal paying customers.
  • Can the social embassies (if any) of the company benefit from the sudden and brief burst of publicity that the deal will bring? How should they be linked and related to the deal promotion?
  • Can some of the Groupon newsletter subscribers become subscribers of company’s newsletter? How?

The future of Groupon’ business model is not yet determined, but group deals as a form of promotion are here to stay. And if this is the case, then we better treat them as part of the marketing arsenal from early on, rather than as an army that can win the war by itself.