Why I think Groupon is a brilliant tool (or: how to use sales promotions wisely).

Last week, I got into a discussion with Belgian retail guru Gino van Ossel on the value of Groupon. His point: “Groupon is overrated because it attracts bargain hunters, so no chance of building relationships”. An interesting and relevant point, while Groupon’s (and their competitors’) growth is explosive.

So, what is Groupon?

• Consumers subscribe to discounted product offers via email, Facebook or Twitter, offered by retailers via the Groupon platform. The discounts range from 50 to 70%.
• Brands and retailers use the platform to offer coupon discounts on their products and services in a specific geographic location (city, part of a city). They set the discount value and the number of consumers that have to participate in their sales promotion before the sales promotion actually takes place.
• Groupon uses the large discount and that fact to attract consumers and drive peer-to-peer recommendations. Groupon gets a decent % of every sales deal that is made. The more consumers and cities, the more possible sales promotions; the more coupons redeemed, the more profit.

That means Groupon is a medium for doing targeted sales promotions.
The value in Groupon is that you as a retailer are pretty sure that a consumer is going to redeem his coupon, and thus that you have acquired a sale (with a discount, that is). Turning this sale into a longer consumer relationship and loyalty is the retailer’s responsibility.

That loyalty is the retailer’s responsibility and has several elements:

1. Offering a sales promotion that actually drives brand and conversations and isn’t a mere discount.
2. Meeting expectations when consumers redeem the coupon.
3. Turning this single sale into a customer relationship.

1) Offering a sales promotion that actually drives brand and conversations.

Let’s say you’re the owner of a really expensive restaurant and want to use Groupon. Then you can do two things:

1. Do a discount on your normal menu. Your normal 300 euro menu will cost a mere 150 euro. This will attract bargain hunters.
2. Do a special Groupon experience menu. Offer a special menu, add an extra bottle of champagne. Normal price would be 450 euro, the Groupon deal will be 225 euro. Not only will this be worth talking about, the effect of seeing other tables with bottles of champagne will even drive your champagne sales in the restaurant. This will drive conversations and build your brand.

Another example: let’s say you’re an airline that has a brand image of being adventurous and you want to promote flying to Kenya. You can either:

1. Just offer a discounted flight to Kenya. Where you attract bargain hunters.
2. Say “We know Kenya and we know you’ll love this. Only once a year there is a really special sunset at a specific mountain in Kenya. Book now and get a discount”. Where you strengthen the perception of being an adventurous brand and create a story worth sharing.

Don’t use sales promotion as mere sales promotion. Use your sales promotion to drive brand and conversations. Construct your sales promotions in a smart and converting way.

2) Meeting expectations when consumers redeem the coupon.

It is tempting to treat Groupon coupon redeemers as second-rank customers, because they pay less and because they might be bargain hunters. To offer them the worst tables, to not take them seriously.
This, however, isn’t what customers expect. They expect to be treated like a normal customer. So do so. Meet expectations. Guillaume van der Stighelen wrote a pretty interesting post about that.

3) Turning this single sale into a customer relationship.

So, the thing is to turn this sales promotion into a customer relationship. By exceeding expectations, by connecting and by giving redeemers reasons to actually plan a repeat visit.

I was once lucky enough to book a discounted Bed & Breakfast in Firenze, Italy. It was just great. The owner and his wife showed us around town, helped us when we needed it and made us feel very, very welcome. When we eventually left, the owner asked me if I liked the Bed & Breakfast. I replied I did. He gave me a small piece of paper and asked me: “Can you do me a favor? If you like it this much, can you go to tripadvisor.com and write a nice review? That would really, really help me.” He turned a discount into a pleasurable experience and even turned me into an ambassador for his product. THAT is a smart sales promotion.

Final words.

Whenever you do sales promotions, you WILL attract bargain hunters. However, what the % of bargain hunters is and whether they turn into loyal customers really depends on your sales promotion. Don’t blame Groupon for being a sales promotion platform. It is the retailer’s responsibility to offer a sales promotion that drives brand and conversations, that meets expectations and that turns this single sale into a customer relationship.

Gino, what do you think?

Written in 2011, left as it was.

Original: Why I think Groupon is a brilliant tool (or: how to use sales promotions wisely), 9 February 2011. Historical links may no longer work.