Groupon: What’s Behind this Retail Sales Bonanza?

Once again, we know you’ve heard about it, and we want you to be in the know.

Groupon (group coupon) has recently emerged as a popular social media site that is essentially a group buying service that offers one deal a day within the markets it serves. It offers deep discounts to all retail establishments it screens. The key is that enough people have to buy into a deal in order to make it a profitable venture from the start for all concerned.

What’s it all about? What are the pros and cons of participating from a business perspective? Allow us to shed some light on this new phenomenon.

Deep Discounts

Retail businesses offer, through Groupon, deep discounts on products and service-up to 90% off. Groupon will tell the potential buyer via email that a particular firm is willing to offer 50% on a particular day on particular items and the buyer will use his or her credit card to purchase the certificate. Coupon deals have expiration dates as noted on the website.

A Group Effort

Groupon will send an email certificate to the buyer which they can redeem at the store. Say the merchant is a restaurant, and they are offering a $40 discount on two meals complete. So the price to the consumer is $20 Groupon keeps 50% of the revenue.

In this case the customer remits the discounted price for the meal to the establishment and Groupon keeps 50% and the establishment keeps 50%. It should be noted that Groupon’s major market is female customers meaning that health, fitness and personal care items are their primary offerings.

Each such offering is a one day only deal and Groupon only goes forward with the deal if they get enough participants to tip the balance and make it worthwhile to Groupon, the merchant and the buyer. Once they have enough takers the offer is open to anyone who wants to participate.

Pros and Cons for Businesses

On the plus side, Groupon is an excellent way to drive traffic to a particular business or service and catch the attention of thousands of buyers who otherwise may not have known about you. It also helps to sell slow moving inventory—Groupon offers an excellent way to get them out the door. In many cases, Groupon helps to generate new relationships. Although you may be providing a one time offer, a simple coupon can bring in repeat business if the coupon holder likes what they see.

There are also several potential pitfalls to consider. You could have a disaster on your hands if you don’t plan on having an onslaught of new customers. Running out of inventory or not staffing appropriately will send customers away with a poor impression of your business. Also, since price is the driving force behind this service, you need to choose those items and services that have the highest margins. You can actually lose on the deal if you are discounting a low profit margin product or service.

Your business and CMA

What does this mean for your business? CMA knows social media, and is ready to help you navigate through all the new digital developments. Give us a call.

Kaitlin Friedmann

PR Manager

kfriedmann@cmasolutions.com