First and foremost, what is Groupon and how is it used? Groupon is an advertising platform that allows businesses to promote their own discounts or offers for services and products. Essentially, it helps foster and encourage connections between businesses looking for customers and customers looking for experiences, and really benefits businesses in two main ways — advertising and price discrimination.
Advertising is a major benefit of Groupon because it has the potential of driving customers to your brewery who otherwise might not have found you. Think of it as an awareness campaign. You have a product that people will care to know about, and you’re simply trying to entice them to take action and visit your location. What’s the easiest way to do that? By offering a deal or promotion they can’t refuse.
Remember, though, Groupon advertising comes at a cost and it’s paid out of your future profits. For some brewery owners, it’s worth the risk. For others, more traditional channels like Facebook and Adwords do the trick and target more of your ideal customers.
Another perk to the platform is price discrimination, which allows you to attract customers with an initial coupon and then use their visit as an opportunity to upsell them. In theory, it also provides you a chance to build a long-term customer base from this pool of new prospects. The biggest benefit here is traffic to your brewery location and an opportunity to build upon that initial interaction. It’s up to you to capture that traffic and ensure the customer returns in the future. Better yet, that concept is baked into the groupon in some way. Think of it like this:
Let’s say you want to host a ticketed event for a new beer you released. You could partner with Groupon to sell tickets to the party at a discounted rate and still make money on your event beer sales. If you only use the platform for beer sales, you will not make very much in profits and will likely not see an uptick in returning customers. It’s part of the risk of targeting deal-seekers. However, by promoting something like an event (with minimal risk to your profit margins) or a Mug Club special – which would certainly incentivize people to come back – you’re greatly increasing the likelihood of a higher retention rate.
Red Clay Ciderworks is a solid example of another strategy in action. In this case, the expense is in the tour, not in the beer. Brewery tours aren’t generally free, but their profit margin is significantly higher than beer, so it has a little more wiggle room. It allows you to attract customers through a higher perception of value without incurring a lot of additional cost on your end.
It wouldn’t be a healthy debate without looking at some of the cons, and we’re not going to shy away from them here. We know that Groupon can be an effective and powerful way to gain new customers, but it takes critical planning and strategy to offset the steep price for those leads and keep you from losing money on the backend. Also, it’s worth noting that Groupon isn’t a one-stop-shop when it comes to deals and offers. You could potentially offer a similar promotion through a Facebook ad campaign and see a comparable outcome – and at a lower risk or cost to you.
So, back when Groupon initially hit the market, it offered one deal per day in each of the markets it served. Then, if enough people signed up for it, the deal was activated. A typical Groupon deal offered a discount of 50% and the remaining revenue was split between Groupon and the merchant. What did that mean for business owners? Essentially, they were now offering a 75% discount on that good or service. Let’s break it down even more. Say you offer a Groupon for 50% off a $10 beer and mug. After the discount and split with Groupon, you would net $2.50. Doesn’t seem so enticing, right?
The other major knock against the platform is the idea of return customers. The statistics provided by Groupon that state 91% of people who purchase deals through them will return to the business later as a repeat customer have been heavily scrutinized. It turns out, if you speak to enough small business owners, they’ll tell you that the majority of their Groupon customers were one-timers. Remember, though, that’s more often the case for services that are not ongoing, like a new beer special or merchandise sales. For instance, you probably don’t want to use Groupon for beer sales, but you could use it to encourage the Mug Club signups we mentioned above. That way, the customer is making an initial purchase that ultimately requires them to come back to your brewery more than once.
You can sweeten the deal even more. Once the Mug Club offer is winding down, you could target those same Groupon buyers with an additional offer that would bring them back again. (Think of an exclusive beer and food pairing event, for example). At that point, your brewery, its product and your customer service has fostered an avid fan who will become a repeat customer.
One final thing to consider in the con column for Groupon is the idea that deals hurt your brand’s perception. Consider it from a consumer standpoint. If you placed two comparable breweries side-by-side and noticed that one was constantly discounting its beer or offering a promotion, and the other featured a well thought out seasonal deal once a quarter, which would you be gravitated towards? Likely the latter, right? Consumers are suspicious of heavily discounted items or services. And the deal-seekers who aren’t wary of those businesses are likely not the customers that return to them. You’re really putting your brand loyalty on the line, and at a steep cost to you, too. Also, price promotions make customers price sensitive. If they’ve gotten a product or service at a discounted rate, they’re less likely to pay full price in the future.
So, what’s the gist? We’ve looked at the positives (advertising, upsell potential, new customers) and the negatives (50% revenue split, one-time customers, possible negative brand perception), and now it’s up to you to take that information and mull it over. Groupon’s ease of use and customer reputation make it a solid contender for consideration, and used wisely, it can be an effective tool to help you grow and foster a thriving customer base. But, if you get started without weighing the options or without creating a strategic plan, you could have a lot of unnecessary stress and worry on your hands.
If you decide to give it a shot, we recommend limiting yourself to deals or promotions that have some extra life to them, like subscriptions to clubs or a monthly beer series event. It’ll allow you to test the platform’s effectiveness for your brewery and encourage customers to come back.
Have you used Groupon before? Have any additional questions or concerns we could help answer? Feel free to share your experiences and comments with us on Facebook, LinkedIn or Twitter, or contact us to learn more at [email protected].