Successful retailers have generated business through the practice of “loss leader” sales & promotion (taking the loss on one product to get customer traffic in for upsales). The decisions are not made randomly; these items are selected with purpose and by crunching the numbers to estimate the ROI. That’s exactly how you should look at using the online membership coupon services such as restaurants.com or social promotions sites like groupon.com and livingsocial.com.

In an American Express Open Forum Jennifer Van Grove, Associate Editor for Mashable, points out how the pomp and circumstance around Groupon’s success makes it easy to ignore the Posies Cafes of the world. Posies Cafe owner Jessie Burke describes offering a featured Groupon deal as, “the single worst decision I have ever made as a business owner thus far.” Burke’s primary problem was that after deeply discounting her goods — $6 for $13 — and handing over 50 percent of sales to Groupon, she was unable to cover her store’s operating costs, including employee payroll.

A Rice University study stated that 32 percent of surveyed businesses reported that their Groupon deals were unprofitable and 40 percent of them indicated that they would not run a repeat promotion through Groupon.  This experience isn’t unique to this website but it is something that can be avoided through realistic expectations.

As with every marketing effort, before you act, establish goals for the campaign:

• Expand awareness of your business
• Drive traffic in to your business during a slow time of week or season
• Building your customer database

Once you’ve established clear goals you can choose the appropriate tactic; select the proper on-line coupon venue and establish the parameters for use with that offer. Keep in mind that not all coupon vendors are created equal.  Some have more subscribers than others; some allow you to put various limits on your offer and some don’t; some will share the financial rewards of the online purchase with you while others will not; some will pass on customer data and others keep it proprietary, this is why it is important want to establish a method of retrieving this information when the customer reaches your business.

The Rice study found some benefits to the Groupon business experiences:

• Those who called it profitable: 50 percent of their discount buyers were upsold, 31 percent were return business.
• Those who called it unprofitable: 25 percent of their discount buyers were upsold, 13 percent were return business.

Kate Lister, who has authored three business books on finances and blogs Finding Money Advice and Undress4Success, suggests the following tips for a successful coupon deal:

1. Do the math. Make sure you can really afford the discount.
2. Limit the quantity based on what the offer will do to your overall profitability, what you can physically handle, and any pivotal points that will add administrative overhead.
3. Limit redemptions to your slack time (e.g., weekday only).
4. Aim the offer at repeat business. For example, instead of offering five golf lessons at half-off, do a buy-three-get-two-free deal.
5. Aim the offer at an audience that’s outside your geographic or demographic reach so as not to cannibalize existing business.
6. Limit the redemption period.
7. Use it to maximize existing resources, as in filling a class.
8. Limit the offer to new customers.
9. Limit the number of coupons per person and keep track of redemptions to avoid people trying to use the same offer more than once.
10. Make the small print large so there’s no confusion over expiration dates, limitations, whether coupons can be combined with other discounts, what’s included and what’s not (alcohol, gratuity, etc.), cash redemption values, return policies, partial redemptions, applicable law, etc.

We add to these emphatic encouragement to research the options available, set goals, establish expected outcomes, and judge whether the tactics you are planning to use will achieve these results.

.

---

---