Social Couponing And A Warning For Brands

Many marketers asked Santa for a social coupon campaign for 2011. The explosive growth of Groupon and Groupon clones (BuyWithMe, LivingSocial, SocialBuy, and Tippr), offering “ridiculously huge” coupons (50-90% off), is taking marketing plans by storm.

These social coupon sites promise high customer demand in return for a deep discount and a share of the deal. In August, Gap offered a nationwide deal of $50 worth of apparel for $25 through Groupon.  Some brands and businesses are offering social coupons directly, including ConAgra, Jack in the Box, and Walmart. However, the biggest participants have been small and mid-size businesses.

But tread carefully before you join the social coupon bandwagon. Running such deeply discounted deals can create a short term volume spike that backfires in the long run. There are plenty of cautionary tales from brands and businesses that didn’t do the math and regretted it.

I spoke to a start-up fashion brand owner recently who said that he’s received dozens of sales pitches over the last few months from Groupon and other social coupon sites. None of them made sense for his type of brand.  He sells a premium line of clothing with multiple sizes. He worried such a deep discount would not only devalue his brand but would create  a huge inventory challenge, causing him to either build up too much or not be able to supply the demand (how to anticipate whether more coupons would come from customers with 34″ waists or 38″ waists?).  But his biggest concern was that a social coupon campaign wouldn’t lead to customers who were profitable in the long run.

Entrepreneur Magazine recently profiled a Rice University study of 150 small to mid-size businesses that offered a social coupon deal with the following results: “while 66 percent of the 150 respondents said that their Groupon deal was profitable, a significant 32 percent found it unprofitable. And 40 percent of the respondents said they would not use Groupon again”.

Marketers should consider any form of deep discounting program carefully. Think about the type of customer you’re attracting because a huge spike in one-time deal hunters who will never pay full-price may not be valuable in the long run.

Social coupons make long term sense if they expose your brand to customers who will want to keep buying from you, even when you’re not on deal.  Start with a plan to convert the deal hunters to long term customers.

A brand is ultimately valued by the strength of its long term relationships, not its sales on any one day.

Contributed to BSI by: Tom Fishburne

Sponsored By: The Blake Project, Brand Strategy, Brand Research, Brand Education

Comments

[Dean]

You've raised an interesting question: is it possible to "convert deal hunters to long term customers"? Do you or any readers have examples of brands that have achieved this?

[James]

@Dean: All of P&G's brands, Kellog cereals, Coke products, Pepsi...couponing has been around since the 1960's and have built Billion dollar brands out of converting first time buyers into loyal customers ever since. A compelling product is of course a must.

[MP]

Couponing and brand marketing don't mix: bad margins, loss pricing power, erosion of product development, disappearance of marketing budget. Brand marketers looking for the new normal in mobile social in 2011 reject Groupon, Gowalla, Shopkick, FourSquare, and even Facebook Places.

They embrace new mobile marketing engines like Social Messaging(TM)--conversations your way, with targeted groups of consumers, direct to their mobile phones. No check-ins; no distractions.

[Dennis Moons]

HBS working knowledge also had an article about Groupon. The comment section has some nice examples on how these coupons are being used.

Definitely worth a read!
http://hbswk.hbs.edu/item/6600.html?wknews=01102011

[Bonnie James]

So far we have had trouble getting the groupon people converted into customers taking full course. We offered our introductory speed reading lesson that's usually $25 (worth at least $45) to Groupon for $5. People who take the $25 intro quite often sign up for the course. Groupon people haven't yet. Still think it was a great way to spread the word about our company. But our situation is unique--we didn't have to stock inventory. Juries still out about conversions.

[SV]

If you develop products that deliver value (valued by the target consumers of the brand and its products), you don't need discounts. Just look at Apple.