How does advertising on Groupon-type websites effect your small business?

Recently we heard someone liken Groupon and other coupon offer websites to a SuperBowl Ad. Some say why is that bad? Those ads create lots of awareness. This is true but at what cost? And like SuperBowl ads the consequences go far beyond the initial ad run, especially if you're a small business owner.

By now most people know about the "real" cost of running an ad on the "no up front cost" coupon websites like Groupon, LivingSocial, etc...you discount your product / service by 50% or more and they keep between 35%-50% of the discounted ticket price, and sometimes even 100% on items $10 or less.

Price points aside, to determine whether or no it's really "BAD" for small business owners, you need to go get your Marketing 101 hat - the one you used when you created your business plan, the one with all the fundamental guidelines that helped you grow your business - and take a good look at what you're about to get into.

BARGAIN COUPONS - Send The Wrong Message

Small businesses, especially local small businesses, are built on relationships. Relationships involve people and people talk! If you have a good product or provide excellent service, people will talk about you, and of course the reverse is true. This basic business fact makes life simple and generates referrals. It's how you build a loyal client base and it's how you keep them.

When you offer drastically discounted coupons for your products or services it's no longer about your how well your menu items are prepared, or the quality of the products that go into making your items, or the personal care and attention of your service - IT'S ABOUT THE PRICE.

So you have to ask yourself, since people do talk, is your small business the one that's known for its excellent products and services that people refer friends and business associates to; or the one known for those incredibly discounted coupons who offer "good" service / products, but if you wait for the coupon it really makes it worth while.

BARGAIN COUPONS - Attract The Wrong Customers

Yes, like SuperBowl ads, those discount coupon websites can attract a new customers. The reality is that they're only there for the deal. Remember the "cost" mentioned earlier. Most small business operate on 40-60% profit margin, so you're now selling a $20 item for $10 and only get about $5 of that. Do the math.

According to industry experts, the commonly agreed upon number for a second business transaction from those customers without a coupon is under five percent, that's five one time returns for every one hundred deals. Deal shoppers will not grow your business. Nothing against anyone who wants to save a buck, but it is no way to grow or sustain a business when you're losing money on more that half your deals and barely breaking even on the rest.

BARGAIN COUPONS - Creates New (False) Expectations

They surrendered once (lowered their price by 50%), they'll surrender again. That's what they're thinking about you whether you want to believe it or not. And they (the coupon shoppers) are willing to wait it out.

Remember, people talk especially in local communities. You've now gone from the small business known for its great service and products to the guys who offer great deals if you're willing to wait for it.

If you're going to offer some fabulous deal to your customers - let them know why: it is part of a new customer appreciation ad campaign; is it a limited supply year end close out; is it because you know times are tough and want to help them out. In other words you better have a really good reason and be able to convey it. This is not something you can do on most of the discount coupon websites, since they offer little more than your standard business bio.

BARGAIN COUPONS - The Bottom Line

Looking at the Groupon, LivingSocial, TryItLocal, and other discount coupon websites through the discerning eyes of basic business fundamentals will really help you to see that giving away more than half your profits for less than a five percent repeat business return is just not smart business. As a small business owner, it's unlikely that your product or service is mass produced and has a huge mark-up that you can give back to the customer whenever the notion strikes you.

There is nothing wrong with offering your customers or new prospects a deal to get them to try your products or service. It is a legitimate way to encourage spending and attract new customers (just don't give half or more of your profits away in the process). The question here is a matter of delivery method, not the offer. There are plenty of proven online methods to get your advertisement into the hands of would-be clients, manage customer expectation and most importantly retain your profits without having to resort to drastically discounting a product or service that you know is worth the price you're asking. Do a little homework before you jump on the coupon website band wagon.

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