It’s not a coincidence that Groupon was launched in the middle of the recession-back in 2008, time when deep discounts of 50%-90% sound especially tempting. It taps into badly hit markets, with highest cutbacks like: cosmetics & beauty (spa treatments, massages, hairdressing, fitness etc.), restaurants, hotels, and anything now falling under luxury products category. It fulfils customer needs, but at a much lower cost.
Groupon lists as target customers companies in consumer packaged goods; accessories; automotive; beauty; beer, wine, and spirits; diet and fitness, electronics; entertainment; fashion, health and pharmaceutical; financial; and travel. Why then all we see are restaurants & beauty deals? To answer this question we’ll need to have a look into the target audience. From Groupon’s demographic breakdown we can see that its market consists of:
• young people (68% 18-34 years old),
• well educated (80% holds a degree),
• predominantly females (77%).
Groupon claims that 75% of them are in full-time employment with fairly high income-so there is a room for spend. I would question these last two statistics, especially in Irish contexts. There’s been highest unemployment rate in Generation Y, with 41%-26% in 18-24 year old brackets and nearly 15% among ages 25-34 in Q2 2010. This group has changed their behavior due to economic conditions, they are deal savvy, well informed, looking for best available value. They still use considerable amount of their share wallets on ‘fun costs’, like going out and treats; but they are very price cautious, heavily influenced by discounts and rewards.
In this light one of the main questions for advertising companies would be:
• What percentage of coupon customers will turn into regular customers?
• Is there an upselling possibility?
Or, as some argue, deal hunting customers are no longer looking for brands, but for ‘an interchangeable generic services or product-fulfillers’. In this case Groupon wouldn’t create any loyalty as customers would be looking for best price offers in a given area, switching all the time.
No doubt that there is a big part of City Deals/Living Social or other deals equivalents that attract certain type of customer who is just buying the service because the offer is cheap.
There is another aspect of young audience and their purchasing behavior to consider though. Gen Y , before making any decisions, check product or service ratings on internet and if it comes to cheap product with poor ratings, and slightly more expensive product with much better reviews, they choose the second one. Therefore companies looking to succeed in turning Groupon customers into regular customers should:
1. Provide outstanding customer experience. There is no point attracting tons of potential customers and not making them feel special, welcome and as important as any other customers-so that they would have the reason and would want to come back.
2. Make an effort to engage with customers on a personal level-for example on Facebook or Twitter. Generation Y is more attracted to brands offering social interaction!
3. Encourage retention-ask them to join your mailing lists/social media sites
4. Remember that Groupon is advertising and should be coming from your advertising budget. You are not paying for an ad, but loosing profit margins on sales.
-Jay Goltz worked out sample campaign key calculations.
-For an Irish case study read post by iMax on boards.ie with 28% acquisition rate and cost of €100 per new customer.
Groupon is not for everyone! It can devaluate your brand or send high volumes of customers paying a fraction of a price that would never come back-if done badly.
Source:
CSO Quaterly National Household Survey, Quarter 2, 2010
http://boss.blogs.nytimes.com/2010/11/23/doing-the-math-on-a-groupon-deal/
http://www.boards.ie/vbulletin/showthread.php?threadid=2056193783
http://www.grouponworks.com/why-groupon/demographics
Apr 13, 2011
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