5 ideas to get the most from Groupon and discount voucher schemes

Groupon - The Failed Magic Bullet? A 'cool tool' won't fix a weak sales promotion...

It's the third time now that that I've heard reference to new research on Groupon indicating that "32% of businesses using Groupon find it unprofitable". The report by Utpal Dholakia of Rice University in the US is the first of it's kind, surveying 150 businesses, it can be found here.

With the chatter this week that Google is in discussion with Groupon about a $5 billion acquisition it's likely that Google sees the advantages in a scalable, viral platform solution and they realise it can be made to work if the sales promotion is right.

There are common themes from those 32% of businesses that were unhappy:

• Groupon promotions worked effectively to drive purchase, often too many sales were made
• Some people spend a lot less than others - consumers are extremely price sensitive
• The consumers using Groupon are deal hungry and tend not to come back unless there's a deal

Surely this is nothing new, the age-old "art" of sales promotion has always had these challenges, Groupon is but a modern, super-efficient, rule-breaking alternative to running a discount voucher campaign in the local newspaper in the 1990's?

When you read on, what the report is basically saying is that 32% of the respondents in the survey felt that Groupon failed to act as a magic bullet to their problems. Groupon did not magic up enough consumers, spending enough money and then returning to spend more. Without enough thought and consideration how can Groupon be maximised, it's like any other sales focussed tactic.

The problem then is failing to understand how to use sales promotion effectively, and Groupon as a modern phenomenon, within that. There's no getting away from the fact Groupon works as a short term sales tactic, Google now values it at $5.3Bn if we believe the rumours of the search giant teeing up to by it.

As a small business how can you get the best out of Groupon - here's our suggestions:

1. Excess stock - do the maths first, does the discounting solve a problem at an acceptable loss of margin, or maybe discounting frees up costly warehousing space
2. Excess capacity - similar to above, and given I worked in the travel market, maybe Groupon could sell seats you'd never have sold and some income is better than none and allows an off-season tour to run, for example
3. Generate awareness - Groupon could be effective way to get awareness with the right market, and get those new consumers to share the buzz, particularly relevant for younger demographics (Most Groupon users are young (68% are aged 18 to 34) and females (77% are female)
4. Generate footfall - The Gap allegedly did this, generating a staggering $11m, using an offer as a loss leader to get people into stores
5. Keep the lights switched on - it may that keeping a production line moving in tough economic times is what you need and that a reduced margin is acceptable for a short period

Of course there are operational requirements to keep in mind on top of this since if you Groupon, they will come! And, you will need more staff, time and resource to serve them. Ensure you limit your exposure in the promotion to guard against over redemption, and of course remember that every customer interaction is an audition for your brand, even when consumers come flooding you'll need to be on your game and earn the loyalty that you seek.

A word of caution from Seth Godin, when you promote loud and proud you create expectation on the part of the consumer, you re-educate the market and you (hopefully temporarily) turn your brand into another noisy, undifferentiated entity. Groupon can never be a magic bullet for sustainable growth, it can be an effective tactic.