To Groupon or Not to Groupon

Written by:
Howard Fenton
Senior Technology Consultant
NAPL
Typically at the end of the year you get to look back at your overall financial performance. According to our research, this year will not look much different from the last few.  As a result, you may be disappointed with your sales volume or profitability. The bigger question, however, is what was the root cause. There are many potential culprits but the one we see most is simply a few bad months.
I remember managing a Kinko’s in Philadelphia where we had huge peaks in demand mostly from sales of course packs when school started. We centralized production and ran for 3 weeks straight 24/7.  But the $64,000 question is how do you move some of the volume from your peaks to your valleys. Not everything can move such as these college course packs, but some companies are motivating change.
For example, you might notice that some customers order the same thing every year such as letterhead, offset four-color shells for overprinting, envelopes, etc. Instead of having them order anytime or during your peaks, offer them a discount to order during valleys.
Before we go too far, we have acknowledged that this is a controversial practice. Some companies in other industries (restaurants, museums, cruises, spa treatments, etc.) swear by discounts and coupons while others say it is a waste of money. Proponents may point to the success of the email couponers such as Groupon, OpenTable or LivingSocial.
For example, in an article in the New York Times, Michele Casadei Massari, 35, an owner of two Piccolo Cafes in Manhattan said, “Our life changed after Groupon — we would do it again.” Groupon sells its online coupons for half their food value and then Groupon takes an additional 50 percent of the discount sales. “You don’t make money on the deal,” Mr. Massari acknowledged, “but in the end we are even.”  That’s because “people spend more than on the coupon amount,” he said. “They’ve been ordering about double the $14 from us. And people usually bring other customers, who are paying full price.”
But critics argue that once you offer a customer a discount they never want to pay standard pricing again and there are horror stories about some companies that lost their shirts using these coupon tactics. The NY Times article points to Posies Bakery and Cafe in Portland, Ore., who wrote, “we literally could not make payroll because at that point in time we had lost nearly $8,000 with our Groupon campaign.”
According to the Harvard Business Review, companies “will find discount vouchers most profitable when the population claiming vouchers differs greatly from the merchant’s typical clientele.” HBR says that there are two areas of difference: “either voucher users must be more price-sensitive than the population as a whole, or they must be particularly unfamiliar with a participating merchant’s services.”
But it does not matter what anyone says.  What matters is can you create a business model that works, which means you have to measure the effectiveness. If your goal in discounting or couponing is to motivate the prospect to return and pay full price, then create a process that measures and confirms that. Build a tracking system, or train staff to ask, “have you worked with us before” or “how did you hear about us.”
Were you disappointed with your financials last year? What are you going to do different? How are you going to measure the effectiveness?
Howard Fenton is a Senior Technology Consultant at NAPL. Howie advises commercial printers, in-plants, and manufacturers on workflow management, operations, digital services, and customer research. He is a paid contributor to this blog.