Insights
Groupon or Advertising? Plus Google?
With Google about to spend $6 billion to buy Groupon it looks like validation of this business model. But, as a local business person, why would you choose to use Groupon in the first place- and will it be a good investment for you?
To understand how Groupon works- it’s a no upfront cost advertising tool. And while that sounds great, The stinger is you are going to get 25% of what you would normally make on a sale. That’s a VERY high cost of advertising. No one would jump into a deal and say spend 75% of your gross price on advertising- in fact, much over 10% and you better be selling things that have crazy markups like booze, diamonds or some professional service (I haven’t hear of a brothel using Groupon yet- but, that’s the kind of business that would do best with this marketing ploy).
The beauty of Groupon is it’s the ultimate sampling/awareness tool. The cost is the killer. Take the local Ben & Jerry’s franchise that offered $8 of ice cream for $4. I give Groupon $4, they give Ben & Jerry’s $2, and Ben & Jerry hope I don’t redeem the coupon (which is the only way they make money- unless they convert the Grouponee into a regular customer). There is also a transaction fee- which further cuts into their margins. So- since we already go to Ben & Jerry’s they just treated us to 1/2 price ice cream. We live nearby. They haven’t grown their market at all. It cost them $6 dollars to sell us $8 of ice cream- and this is a recipe for going out of business.
Now, if B&J had religiously collected emails, sms, and addresses from customers- and built a customer loyalty program- even using tools like Foursquare, they could have made us very happy with a Buy One Get One offer- and only spent 50% of their margins. Or rewarded all frequent customers with 20% off- and been ahead. No payment to Groupon, no mad rush- followed by a lull, and targeting a much more relevant demographic. Because unless you have a lot of locations- Groupon probably over delivers your market as well. While you and I live in an internet connected world, there are a lot of Americans who still by ice cream that don’t live and die by the browser. In fact, 1 in 12 can’t even get access to high speed internet in this country even if they want it.
Groupon doesn’t change one fundamental rule of business- it always costs more to acquire a new customer than to retain an existing one. Remember that.
So, when does Groupon make sense? If you have an innovative product that no one else has and you need people to sample it- this works well for professional services, hair, nails- where one fantastic job can convert a customer. It also works to introduce people to your new lasagna pizza (the “Pizzagna” - don’t say it fast) that no one else has.
Launching a brand new company- may also be a great way to minimize your initial customer acquisition time, but at a very low price. Remember, it’s always easier to drop prices than raise them- and your $4 deal on an $8 garbage burger may just end up being the most you can ever expect to charge again.
Doing a little searching- here are some recommendations from another site:
* Do the math and make sure the discount you’re offering won’t damage you financially. Don’t be bullied into offering a steeper discount than you’re comfortable with.
* Are prepared to serve a large influx of new customers; you may even need to hire more staff temporarily. If quality and/or service might suffer with more business, think twice.
* Come up with incentives for those new customers to come back at full price, or offer a more modest discount.
* Understand that many companies use companies like Groupon simply to acquire new customers and are willing to break even or even lose a little money on their offerings.
via Should Your Company Use Groupon to Increase Sales? | BNET.
There are many people who think Google has lost their mind offering $6 billion for Groupon- this writer included. Yes, they gain 3,100 sales people- which Google is desperately in need of, but, almost anyone can build the Groupon model into their business with minimal effort. This type of deal brokering has been done by others - here’s a link to 50 Groupon like sites.
There are a lot of out of work radio, TV and newspaper account executives that Google could hire and train for a lot less than $6 billion. As it is, Google is already the leader in directing customers to business online- but, does an absolutely horrible job of teaching people how to use it’s tools effectively. Sometimes technology still doesn’t beat personal, face-to-face sales. Every city should have a Google office- just like Apple has rolled out their Apple stores- where Google can show off it’s technology, train people to use it properly- and build real relationships based on trust. Somehow, with Groupon’s huge windfall- along with their high costs, I can’t see this model staying viable for more than a flash in a pan.
If you need to devise better ways to reach new customers, look into CRM, talk to a company like The Next Wave (us) on how to market in the digital world, but, be very careful before committing to Groupon.
Why big media is failing with small business
If there is one thing about the new media landscape that hurts the most, it’s been the demise of local radio. When done well, it’s an art form. When done by corporations- it’s a failure of magnanimous proportions.
If you listen to the gurus of our economic destiny- you’ll keep hearing that small business is our real economic engine, yet- except for the Internet and Google with their adwords, big media has pushed small business away for years.
What brought this to mind was the very first example in “The Art of Client Service” by Robert Solomon. It’s in the introduction- not even one of the “58 Things every advertising and marketing professional should know” that’s made the book a classic in the business. He describes the handing off of a client from one rep to another. In the umpteen corporate “reorganizations” and new “Sales Managers” grand plans to make Clear Channel somehow better- they forgot about the customer. The one who has a relationship- face to face with the people who buy their product.
It’s not just the radio station, the newspaper does the same thing as do the television stations and the cable companies. Some genius forgets that business is built with interpersonal relationships- and that you can’t change them without the consent of both parties. Good relationships aren’t arranged marriages, but the result of building trust over time.
Your bottom line will only be as good as your front line- the relationship between your company and your customers isn’t created in a board meeting or at corporate HQ, it’s forged by your sales people who press the flesh and write the orders and bag the groceries.
It’s in how you deliver your product or service, with a personal touch. Small business still understands- big business, doesn’t.
Does your company have "personality"?
Personality has been used in marketing for a long time- what would Frosted Flakes be without “Tony the tiger” or Michelin would just be another tire company without Bibendum- or Nike without it’s celebrity athlete endorsers. Apple owns cool design, as do Oxo, Good Grips, Alessi, etc. The brand Craftsman stands for lifetime warranty and strength. We’ve infused brands with personality for years- but, the company- the people, from the way your employees answer the phone- to what they wear- to your packaging- what does it say about your company.
For a long time- we were afraid to show emotion- to have a face- being faceless was synonymous with being big- and everyone wanted to be big. Oh, we’d always be careful to be multi-cultural and politically correct- to the point of boredom, but- finally, companies like Virgin, Google, Zappos, Southwest all broke the mold and let people be people again.
I highly recommend the book “Personality not included” by Rohit Bhargava from Ogilvy. The Cliff’s note version:
Chapter 1 – Faceless used to work because big meant credible. This is no longer true
Chapter 2 – Accidental spokespeople are speaking for your brand – Embrace them
Chapter 3 – Uniqueness plus Authenticity plus Talkability equals personality. Use the UAT Filter
Chapter 4 – Backstories establish a foundation of credibility. You need one.
Chapter 5 – Fear of change leads to barriers. Finding your authority overcomes them
Chapter 6 – Personality moments are everywhere and unexpected, but you must spot them
The more we learn about building brands at The Next Wave- the more we’re convinced of two things, that this book keeps hammering home- the old adage that “People do business with people they like” is foremost- and, brand loyalty has to be earned everyday- and that the costs of acquiring new customers is so much greater than keeping existing ones- that doing things that create the love (talkability) should be a key part of every companies brand strategy.
What kind of tools do you have to keep close to your customers? What do you do to “Create Lust • Evoke Trust” in your company? Are your ads just beating your chest- or are they sharing your secrets sauce? What makes your company interesting?
If you are struggling with these questions, read Rohit’s book- and then give us a call. We’d love to discuss it with you.
Black Friday, Cyber Monday and desperation….
If retailers wonder why they don’t make money for 3 quarters of the year- it’s because they seem to forget that customers want deals everyday- not just 2 days a year.
Somewhere along the line- they’ve forgotten that customers always want things- like great service, prompt delivery, honest sales, product in stock, reliable products. Do you think people really enjoy standing in line for 3 days in the cold waiting for you to open your doors?
The old adage about “give a man a fish, he eats for a day, teach him how to fish and he eats for a lifetime” plays just as well in teaching customer behavior. By playing into this “Black Friday” madness you aren’t building customer loyalty, showing respect for your customer or delivering a positive shopping experience.
Remember when a few “lucky shoppers” were crushed to death in the stampede trying to get into a store for a “Black Friday” deal?
Relationship management is the key to building loyalty, trust and customer satisfaction- which all will lead to long term profitability. This “Black Friday”- show your customers some respect and leave the circus stunts for the competition- offering the first 10 customers some great deal- just pisses off the other hundred.
Is that your idea of “marketing” or is it desperation?