[This is an excerpt from my new book, Groupon: Why Deep Discounts are Bad for Business]
In the first blog of this series, several people commented it was incumbent on businesses that used the Groupon, Living Social and Restaurant.com, and other online coupon companies to have ways to capture those customers.
And how exactly do you expect that to happen? Continue reading Groupon Review For Business: Fallacy of Converting Users To Profitable Customers »
[This is an excerpt from my new book, Groupon: Why Deep Discounts are Bad for Business]
Why pick on Groupon? That’s because it’s been growing at an exponential rate over the past six months, and expects to end the year with as many as 25 million subscribers and $400 million in gross sales.
Lest you think I don’t understand why business owners are grappling with Groupons, I do. When I was first trying to get business I took out Google pay-per-click ads. Trying to do “something” I went through several thousand dollars in the hopes I’d get people to my site.
They were hitting it alright. And leaving. The expensive truth was my site was terrible.
Until I fixed that experience for my customers, I was wasting my marketing. The same is often true of local businesses and these sites.
In the race to do “something” local business owners often ignore the things that can most affect their success but latch onto the promise of visibility and footsteps.
It has created the….
Perfect Storm
Could Groupon, BuyWithMe, LivingSocia, Bloomspot, HomeRun or other discount sites have existed five years ago? I don’t think so.
When money’s coming in its all due to us. When it isn’t we look elsewhere. That’s why The Recession has created a perfect storm for all these deal sites.
Here’s why: Continue reading Groupon Review: Local Businesses’ Perfect Storm »
[This is an excerpt from my new book, Groupon: Why Deep Discounts are Bad for Business]
Part 2 of a series of 11 on the perils of discounting for businesses. Today’s post explores more about the financial costs of couponing, discounting and utilizing Groupon and their online clones, coupon blogs and their ilk.
Introduction
This is not a consumer blog. I’m unabashedly in the business owners’ corner. Whether it is as a multi-national manufacturer, a regional chain, a distributor, an established franchisor, a new franchisee or single store operator. My business is their business.
As a retail expert who speaks and as an information entrepreneur, I speak and write to help businesses be more successful and keep the engine of commerce profitable.
I said it ten years ago with my first book, You Can Compete: Double Sales Without Discounting, again in my newest book, The Retail Doctor’s Guide to Growing Your Business (Wiley & Sons) and it is a hallmark of my motivational speeches to business owners around the world: Discounting doesn’t build your business.
I haven’t seen anyone delve into this as deep as I’m about to so i hope you’ll stay involved, join my Facebook Fan page or sign up to the RSS feed of the blog, tell your friends, tweet, “like,” and let me know your thoughts.
Cherry Picking
When you use coupons, offer a Groupon, Entertainment Book, Bloomspot, you name it, you are more likely to be cherry picked because they’re typically a value of services for 1/2 ( or more!) Check out this one from last Saturday: $175 worth of furniture for $40. 
That means shoppers are able to get the top 20% of your best selling, first run SKUs at a deal. So you end up out of stock with the very things you need to be profitable.
Price Matching
Back when I sold western wear in the 80’s, we had a competitor regularly run coupon sales on lizard boots for $199 when the ones I was carrying were $269. Invariably the competitor wouldn’t have the customer’s size, they’d come to me and ask to price 
match and get the same deal. My response, “No dice.”
“Why not?” they’d ask.
I’d tell them, “Ours would be free if we were out of stock. But we do have your size. And they fit. And you can wear them out tonight. Will that be a box or a bag?”
90% of the time I’d get, “Box please.”
It costs money to stock a store, staff a spa or run a successful kitchen for your restaurant.
Matching the price of a competitor takes everything out of your own business and reduces it to whatever unscrupulous, low-life, dirt-scratching competitor across town or down the block is offering. Often at a loss.
It ignores the probable fact the competitor’s parent purchased the land, building and merchandise eons ago and so their daughter or son has no debt load.
You, on the other hand might have taken out a home equity loan at the top of the housing bubble and now have more bills than receipts.
Further, when you price-match or sign up for an online “deal of the day” discount past your profitable price, you have fallen on your own sword.
Oh you may not feel it at first as the blood seeps out. You’re so horny for the deal you tell yourself, “I had to do it to make the sale.” 
That’s like the Black Knight in the Monty Python movie, “Its not so bad, it’s only a flesh wound.”
But as you do it over and over again it gets easier. When such a shop inevitably loses its way after a pattern of this price matching or couponing, the owner realizes (too late) the path to failure was a determined effort to avoid the truth about what hand they had in the demise of their own profits.
The good news is that I am writing this series to warn you now.
Discounting to others who don’t know you doesn’t work! Profits do!
Profit comes from taking the risk of what customers will want to buy from you.
Rewarding Risk
Like some type of fortuneteller peering into a cloudy crystal ball, you (whether you are a manufacturer, distributor, franchise or mom and pop) are buying merchandise in anticipation of what your customers might want in the future.
It’s an inexact science for new merchandise since it is unproven. Its risky.
At least 50% of the time you are either wrong or the merchandise doesn’t turn at least twice to give you a good return on your investment. Of the remaining 50%, 20% are fantastic, barn-burner, stellar money-makers. But you may not be able to keep them in stock because that first 50% that has taken up your open-to-buy are gathering dust on your sales floor making your ability to juice sales limited.
Without the reward from taking those risks, and the profits that result, you end up with stores filled with boat loads of boring merchandise. You might have some very happy sales representatives but an unhappy spouse as a result.
Boring merch is what is wrong in a lot of stores these days.
So why would you reward another company’s customers with a virtual run on your balance sheet either through price-matching, Groupons or other discounts?
Good question.
Tomorrow: The Alien Danger To Business With Groupon (and their ilk)
Here are the previous posts in case you missed them:
Dear Bob, This past Tuesday, my husband and I took our car in to a dealer near Mission Viejo for a routine oil change, a front headlight replacement and to check the brakes. We’ve gone to this dealer for the past 6 years, but they’d recently changed ownership. We always had good experiences in the past, so we were hoping for a good experience this time.
Turns out we did need brakes and a brake fluid change, so that brought our original estimate of $94 to the final total of $608.
Just two days after that service, I received coupons in my email from the dealer. I could have saved $40 with those coupons! I called the dealership and after the phone continued to ring unanswered, my husband and I decided to go in and ask them to credit the $40.We spotted the service guy who normally helps us and told him what we wanted.
He said, ‘I can’t do anything about it.’ Hubby says, ‘We want to see the service manager.’
Service guy says, ‘Just talk to so and so since he wrote it up. There isn’t any need to talk to the manager.’
So and so says, ‘I can’t do anything about that’ (Oh, that just escalated my boiling point right there.) I said, ‘Then call the manager. This is ridiculous.’
He went to talk to the manager, came back and said, ‘$20 credit on future servicing is all he’ll do. You can only use one coupon. With the new management, we’re following all the rules.’
I replied, ‘You are telling me, as a 6 year LOYAL customer, that I am not worth saving for an additional $20? Forget it. We’re done. We won’t be coming back and we SURE won’t purchase another car here.’ And with that, we left.
Within 2 hours, we received a call saying that we would get a $40 credit towards a future servicing. However, I don’t feel warm and fuzzy about the dealership.
Just goes to show that you can really damage a good thing over something that, in the scheme of things, was very little. I’m sure you hear this all the time. If only these companies would get a clue.” – Dian
My Take
What struck me first about this story was that she was talking about 6% of the total order being refunded. You can bet their cost of acquiring a new customer is probably five or more fold.
As longtime readers of my blog know, I am not a fan of couponing. I think it often causes problems – usually in regards to loyal customers.
BUT if you’re going to offer them, if you made the decision to give away money to people who will use them, then darnit, don’t pull back from honoring your coupons! You aren’t losing anything!
Jeez, from Dian’s story you’d think she was asking them to give the store away when in actuality, it was less than the tax on the total bill.
Secondly, if you have a CYA culture that is disempowered you will get customers railing against you on Yelp, Twitter, Facebook, LinkedIn, YouTube – even blogs.
Couple that with Analytical personalities who only see black and white and you have a recipe for disappointing many customers as they follow the letter of the law. (See my post last week about the Analytical manager who stood in my way of a refund.)
What’s particularly ridiculous is their offer of $40 in future service. Heck, they should have refunded the $40 and given ‘em the $40 towards future service in a personal phone call from the manager or new owner. A bonus would have been a gas card to pay for their trouble to come in in the first place because no on answered the phone.
Instead Dian has told me and I’ve told thousands of you her story.
What say you coupon givers? Was Dian being unreasonable? Should coupons be absolutely verboten on previous purchases? And how does that compare to your local Macy’s, Nordstrom or Best Buy?
Don’t make the same mistakes your competitors do when hiring; learn about the four personalities in my new book, The Retail Doctor’s Guide to Growing Your Business.
