[From LinkedIn] I have just read a news report called “Groupon fights for its life as daily deals fade” which did not really surprise me. I know some of our suppliers have from time to time dabbled with discounting their activities and events through such sites and I have not heard a good story about any of them.
I understand there are about 40 of these discount coupon sites in Australia – which is a lot for our ‘tiny’ population of only 22 million. I thought it time I shared what I know:
- A discount coupon is NOT a gift card. Put yourself in the customer’s shoes – imagine receiving a printout of an email that says 75% discount on surfing lessons… (This happened to my colleague Lauren – and she found out it was re-gifted as well – she was really unimpressed with the person who gave it to her – more on her coupon experiences)
- A gift card is what as known is a ‘stored value card’ – it gives the holder an entitlement to make a purchase – a coupon is an introductory sampling offer subject to many terms and conditions – it does not give an entitlement to purchase.
- The coupon sites say to suppliers “we will introduce you to new customers who will become long term customers – we are your marketing agent.” This is fundamentally flawed. A purchaser in a discount mindset is unlikely to change that behavior by nature given that they bought the coupon to get a deal. If they have a deal for a meal they will absolutely make sure they do not spend one cent extra…. because they need to prove to themselves that they got a deal. It is very hard to upsell a customer in that mode.
- Coupons also reveal the business model – in other words they show to the public how a business makes money. Ie if a supplier offers a discount – and the supplier is named – it damages the ability for that supplier to charge full price to other customers. I have seen this happen first hand – when a coupon customer sat in a restaurant and loudly said to the waiter something regarding his meal deal…. everybody else in ear shot (including myself) felt firstly embarrassed and secondly let down that we were paying the full amount – it effected forever the way I viewed that restaurant.
- A business with the sole purpose of making money is not sustainable. I have done a lot of reading in the areas of ‘Conscious Capitalism’ ie businesses with a noble purpose. You may have heard of Raj Sisodia Firms of Endearment Successful businesses solve a customer’s problem – they make the world a better place.
Clearly a discount coupon has a place in the marketing mix – the upset is caused when people confuse this sampling program with a voucher, gift card or a present. I will eagerly await how the discount coupon sites evolve their business model to reduce this confusion.
This Christmas whether you are a business tempted to list with a coupon site – or a potential customer….. Remember the purpose of Christmas is about celebration and happiness… and a coupon for a discount will bring neither.
(Note: Obviously as the founder of redballoon.com.au I have a bias toward gifting.)
Ben says
Ben S. wrote:
You’re exactly right, the model is terrible.
It goes like this:
-Start an online business
-Try to get the business to catch on with customers and media
-Key on dumb consumers, not saavy businesses.
-Grow usage/eyeballs (or revenue if possible but not as important) to the moon at all costs
-Sustainable growth is irrelevant
-If available, make acquisitions in order to inflate your revenue and appear organic
-Record significant losses along the way.
-File IPO and show the J curve of usage/revenue and made up profitability ratios to the public
-Sell shares at a huge valuation while insiders sell at high levels
-Then BOOM, mission accomplished.
Whatever happens after that is on the idiots who bought the stock and fake talented management left at the company. Great business model indeed.