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STRATEGY

To Groupon or Not To Groupon? Do This First

Understand your customers--and the possible return, if any--before you make a Groupon-like offer.

istockphoto/fazon1

istockphoto/fazon1

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In the past several years, the world has seen a huge increase in daily deal sites.  There has also been a surge in "on premise" offers like those from Foursquare, which recently announced it would start to offer personalized discounts to in-store customers in July.

Yet, with all the activity, Groupon, one of the leaders in the industry, has also announced disappointing financial results and a change in the monetary split between what the merchant demands verses what Groupon keeps.

There is much speculation among business owners and retailers around the value (or lack thereof) in signing up to make one of these offers.

When you assess a new technology or offer, it's essential to understand not only what will attract a customer to act on an offer but also why she will act that way, and what the resulting long-term customer behavior will be after conversion. Of course, this is true with Groupon-like coupons.

My team at User Insight has conducted research in this space, and identified distinct types of coupon or "deal"-seeking customers. By understanding these types, and their underlying motivations, you can identify the value one of these deals could bring to your business long-term.

Let's look at two primary types of coupon users:

The casual couponer

This consumer takes advantage of a deal just because it's there. She doesn't plan her life (or the products she purchases) around a discount offer.  She will act on a coupon or deal to do something that she was planning to do anyway. Think of her mindset like this: brand first, coupon second.

You should use couponing systems like Groupon to introduce yourself to this consumer, but understand that unless you're using the discount to introduce a new item or service, you're likely going to lose revenue overall. This deal-using shopper probably would have bought from you anyway. And, she will not change purchasing behaviors going forward, unless her experience with you is exceptional.

To capitalize on this customer's interest on a long-term basis, you must build an experience that goes beyond merely making the offer. This customer will not return just to "get a deal" or "because of a deal."  You will gain her loyalty and repeat business only by delivering an exceptional product or service.

The reward seeker

For this consumer, the coupon is the defining purchase rationale. He is not loyal to a brand. I'd suggest you envision this mindset as coupon first, brand second.

Once a shopper like this uses your coupon, he moves on to the next deal.  If you are seeking to increase sales for a short period of time, offering a deal or a coupon is a good way to attract this group.

But in order to keep him around, you must build a compelling incentive program, one that is achievable and keeps him coming back time after time for more discounts and offers. For this deal seeker, getting a deal is a type of game play.

For all deal seekers, unless you have serious brand cachet (like, say, the Starbucks app), participating in a Groupon or Foursquare rewards program (or one like it) is going to provide you better return over trying to build your own. The systems that address both attraction and retention will be the long term contenders.

One commonality occurs across both types of shoppers. Any deal better be easy to understand, and use. No shopper wants to download multiple apps, or wade through complicated security. It's got to be at least as easy as taking a coupon to the register and walking out.

Last updated: May 23, 2012

ERIC V. HOLTZCLAW is a serial entrepreneur who has founded multiple startup companies, including one of the first profitable Internet enterprises. His last company appeared on the Inc. 5000 three years in a row. Holtzclaw advises clients on the whys of business--why customers buy, why teams work, and the all-important "entrepreneurial" why. He is the author of Laddering, and his weekly radio show, The "Better You" Project, shines a spotlight on entrepreneurs' individual business journeys and successes. To learn more about Holtzclaw, visit ladderingworks.com or e-mail eholtzclaw@ladderingworks.com.
@eholtzclaw




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