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Does Your Local Business Need Groupon?

by Willy Lim
(Co-Founder, NetProfitQuest)

March 2011 Issue of SME Magazine

March 2011 Issue of SME Magazine

Original article appears in March 2011 issue of SME & Entrepreneurship Magazine

In my February article “iPhone and Social Media Tips for Travelers”, I shared from a traveler’s point of view, how I have leveraged on my iPhone and social media to have the perfect holiday. In this month’s article, I would like to share my views on a recent phenomenon that has swept the market like a whirlwind: Groupon.

What is Groupon?
Groupon is essentially an online discount coupon site that offers exclusive deals to consumers by leveraging on collective buying power. Groupon works with local businesses to create coupons, with typically greater than 50% discounts, that are offered to consumers. Each day Groupon offers one special deal available for purchase in 24 hours. The Groupon purchase does not get confirmed until the minimum number of buyers has purchased the deal. If, at the end of 24 hours, the minimum number is not met, the deal is off and the consumer’s credit card is not charged. The theory here is the collective power of multiple buyers helps drive down the cost, yet ensuring the business doesn't lose too much money by offering such steep discounts.

That is the concept Groupon adopts in their business model. The only difference that makes Groupon unique from any other coupon site is that in order to participate in these opportunities, consumers need to sign-up for Groupon by entering their email.
Essentially, Groupon is a very simple, very powerful, not necessary cutting edge, internet marketing company. The center of Groupon, what drives Groupon, is really email marketing. Basically what Groupon does is to do email marketing for local businesses that won't do it for themselves. But it is the businesses that do email marketing themselves, that would make all the money and make their own rules.

In reality, Groupon's ONLY selling point is that they build email list for local businesses. You will have to pay Groupon to build that email list and also give a discount (which is by the way the WORST FORM of marketing ever). Discounting the value of your products or services is generally not good, unless done strategically, because you are basically training your customers to wait for a sale. A lot of local businesses on Groupon, are not making any money on the promotion because of the heavy discounting. These local businesses are really hoping that these bargain hunters will turn into regular customers.

However, the paradox is, these bargain hunters are not the type of people that will turn into regular customers. Bargain hunters are only loyal to the discounts, and they will hop from merchants to merchants to find the lowest prices. These are exactly the wrong type of people to target if you want to build long-term loyal customers.

In fact, it is really not that challenging for you to do a Groupon deal yourself, on a local level and at a more niche focused level. The anatomy of a Groupon deal consists of 2 simple parts:-

1. Email marketing
Build an email database of customers that are interested in deals and market to this email list.

2. Scarcity
Scarcity is the human psychology mechanism that Groupon uses to get people to take action NOW: by taking something away when the time is up and by limiting its availability.

…and that’s it! Not something that the average SME owner cannot do.

The foundation of email marketing is creating a one-to-one relationship with your prospects and customer. Through Groupon, you would have outsourced the foundation of this relationship to the wrong people (bargain hunters). So instead of going to Groupon and cutting your prices, you should develop that direct relationship yourself.

But what is needed to setup such a local business “Groupon” deal? Here’s how…

1. Drive awareness using offline and online methods
Place offline advertorials with good content instead of plain advertisements. In these advertorials, ask the prospect to visit your website to download a free report with more valuable information inside.

Optimize your website to be found in Google for local keywords. You want to be found when people search in your local neighborhood for your products or services. It may be difficult to rank in Google for a search term such as "cafe" but it is very possible to rank well for the localized version of the term like "café petaling jaya".

You can also logon to Facebook and setup a page for your business. Provide a link to your website on your Facebook page and encourage the prospect to visit your website and download a free report.

2. Give free report to collect email database
Send the traffic from offline advertorial, Google and Facebook to an email opt-in landing page with solid headline, compelling benefits and copywriting to capture the prospect’s email in exchange for the free report. Think about it, Groupon's homepage is really a landing page to capture email database!

The report should contain information that is of interest to your prospect. The more you tell, the more you sell. For example, a property agent may offer a report “Top 10 things that you need to know before you buy a property in KL” or an electrical contractor may offer a report “5 things you must know to choose a good and skillful electrical contractor”. The report should highlight your expertise, demonstrate your dramatic difference and show your prospect why they should choose you over competitors.

3. Email a time-limited or quantity-limited offer to the database
For example, if you are a retailer, you can sell one particular in-store item at a discount only for a limited period, thereby getting people in the store and hence increasing the odds that they may buy something else. If you run a restaurant and you want to increase dinner traffic, you may offer say a free soup of the day to go with any entrée only at dinner times for a limited period. If you are a property agent, you can reduce your commission rates for a limited period, to target clients looking to buy or sell property in a particular area, if they choose to use your service.

Provide regular communications, conversations and value through email, rather than just discounts, otherwise you will be training your customers to wait for the next promotion. Try other forms of promotion that doesn't involve cutting your prices and you may find that you may make more money than going to Groupon!

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Feb 26, 2012
*UPDATE* Groupon doesn't give email list to merchants
by: Willy Lim

I just found out that Groupon doesn't give the email list of customers who bought the discount coupon to merchants. The merchants has to figure how to capture these customers' contact details themselves.

Also, Groupon keeps all the monies from the unredeemed coupons.

This is a LOSE-LOSE proposition for the merchants.

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