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20 December, 2011

Is Your Local Business Going Broke Fast with Coupon Sites?

A recent court case in Brisbane involves a customer who purchased a discount coupon for a hairdresser, then became furious  when she found her bill full of “extra” charges.

This case  has brought to light one of the many problems local businesses and small businesses experience with the “massive discount” coupon sites.

Groupon, the world’s largest coupon site is pushing and shoving its way into Australia, and there are several others already thriving here such as scoopon, spreets and living social.  The discounts offered at these sites are sweet deals to customers and are good for exposure.

But are coupon sites good for local businesses?

If you have to discount your services by say 60%, then pay commission to the site, just how much profit (or loss) are you really making? If you consider this simply the “cost of acquiring a customer” ask whether this customer will likely buy from you again.  Or, will they jump to the next good deal from whomever.  Recent research shows only 35.9% of customers spend more than the coupon value, and only 19.9% ever buy again at full price.

As well, most customers don’t really read the fine print. If they walk out paying as much as a walk-in because of all the exclusions you put on the deal, they won’t be back again.  In the case of the hairdresser, the customer got so angry she spat on the shop owner.

Is there too much of a good thing?

It’s critical to know how much a product costs to make – including labour costs, time,  maintenance and repairs. Then multiply that by 25%, 50%, even 500%. Can you still make money?

The owner of a bakery outside London had no idea how popular her offer of 75% off cupcakes would be on a coupon site. Her usual sales were 100 per week – suddenly orders were in the thousands. The entire years profit was wiped out by this one promotion. The coupon site she chose has no limit to the number of vouchers that could be sold. Her take on the experience? “Without doubt, the worst ever business decision I have made. It’s been an absolute nightmare.”

Are coupons bad for marketing a local business?

I don’t think so, it just takes some serious thinking.  You can ruin your profit and your reputation/brand if you haven’t fully thought through what you’re doing.  Most business owners get starry eyed with the thought of all this money coming in and forget the possible downsides.  They forget the type of customer they’re likely to attract.

Fact is, though, there’s no stopping the push for discounts from consumers.  It’s an ever increasing trend and challenging economic times add fuel to the  situation.  However, smart local bushiness owners can make coupons work well.  Here’s one way:

  1. Know your numbers (above).
  2. Run your own coupon campaign.
    You don’t have to offer massive discounts, just reasonable ones. What is reasonable is determined by knowing your numbers.
  3. Use online sites to post your coupons (free ones and paid) and offline coupons (letterbox drops, local newspapers, local trading magazines, and so on).  Give each coupon source a different code.
  4. Ask each customer how they found out about your business.
  5. At the end of the campaign or month, whichever makes sense, tally where the customers come from, using the coupon codes and any other information you collected.  Give the process 90 days minimum to get a realistic snapshot.

In a short time, you’ll know where 80% of your customers come from and now know where to best focus your marketing and advertising efforts.

You might even find the best places to advertise your local business cost you the least!