One of the bigger internet stories I was following about 2 years ago was Google’s interest in buying Groupon, a couponing site that was growing tremendously. Google was late to the game when it came to internet coupon sites so they attempted to buy Groupon, the top couponing site at the time. The deal never did go through, Google saved face and Groupon struggles to remain relevant to this day.
Back in December of 2010 I was following a Long Island Startup called Grublifemetro, a couponing site on Long Island. I even wrote a pretty good article about how I thought internet couponing, and GrubLifeMetro in particular, was a very good business model. GrubLifeMetro made a brief splash across college campuses on Long Island back in 2010 but they seemed to have disappeared. Only their twitter account was left behind, an account that has not been updated in over a year. A reminder that startups go belly up fairly quickly.
Consumers Love Couponing Sites!
From a consumer’s point of view, couponing websites are awesome. You get the chance to try out a business for up to 50% off their regular retail prices. Many people who were planning on going out shopping or dining would hit Groupon first looking for a great deal. This was a great way to save money at a business a person had already planned on patronizing.
Business’s Hate Couponing Sites!
But Business’s had to offer steep discounts to get their products or services onto these couponing websites. Since the deals were already 50% off regular retail prices, the last 50% that had value was split between the couponing site and the small business. Of course, business’s never did see any money at the time of the sale, they would have to wait a minimum of 30 days before they would receive a check from the couponing site.
Do the math, for every $100 deal that was offered, take off 50%, your now at $50. Split that between the business and the couponing site and each one gets $25. A business would have to plan on losing 75% of their sale when using a couponing site. When your margins are anywhere from 10 – 40%, there’s no way a small business can make money off a couponing site.
Some business’s hope that the increased traffic will increase buzz for a brand and generate revenue in the long run. Absolutely not. The more you sell the more you lose. Generating buzz like this can put you out of business. Of course, the couponing company makes out like a bandit. It’s all profit to them.
Couponing Sites Create Networks of Consumers Who Have No Loyalty.
Learn this lesson well. It all comes down to your networks. Couponing networks are built around shoppers who have no brand loyalty and only buy the latest and greatest deal. These are not networks you want to draw from. The network you want to draw from is the one you build. This would be a combination of your facebook fans, twitter followers and customers on your email marketing list. These are where all your brand ambassadors are hanging out.
Overall Couponing Sites Suck for Small Business’s
As more and more business’s start to shy away from these couponing sites, there will be slim pickings for the services that are offered on these platforms. As business’s stop using sites like Groupon, their will be little incentive for consumers to use them to. Business’s that continue to use them may only be doing so to fill a few extra seats or make very small sales but they still lose money on every transaction so the use of these sites as an overall part of any marketing campaign will remain small.
If you’re a business and you’re looking for ways to use couponing in your marketing campaign, try these two. One I’m currently testing, the other is tried and true.
Next month I will be testing SaveLocal. SaveLocal is a couponing option offered by Constant Contact, the industry leader in small business email marketing. All they ask is about $2 per sale so this is an option I am definitely considering for my clients. I hope to have a good report soon on this service in about a month.