Are Discount-Promoting Sites Right For Your Business?

Thomas Fox is president of Tech Experts, southeast Michigan’s leading small business computer support company.

“You’ve undoubtedly heard about Groupon, the Internet company that sells discount coupons for everything from spa visits to cosmetic surgery. Their IPO last November was the largest since Google, and raised about $700 million.

You might wonder if adding a Groupon or Groupon-like promotion to your marketing mix makes sense.

There are dozens of companies that provide these types of promotions (Groupon isn’t the only game in town), including our local newspaper – see (offered as illustration only, and not endorsement).

Personally, I’m skeptical of both the marketing value and the business model. Don’t get me wrong! As a small business owner, I’m not really a fan of discounting, but I understand that it can be a powerfully effective marketing tool. I do, however, question its viability when used on a mass scale for new customer acquisition.

The Groupon model
Groupon’s model, in particular, has some quirks that make me skeptical.

After a deal goes out and coupon buyers pay for the deal upfront, Groupon doesn’t pay out the merchant’s portion immediately.

Instead, it pays out in three equal installments over a period of up to 60 days.

In contrast, Living Social and Amazon’s Local service pay out 100% to merchants within 15 days. Google’s service, Google Offers, pays 80% within four days and the rest within 90 days.

Smaller businesses that are always concerned about cash flow can really get into a bind, since they have to honor the coupons immediately and then wait to collect their portion from Groupon.

The whole “I take your money now, and I’ll give you your cut later” thing strikes me as a bit Ponzi-like, especially since almost two months go by before the merchant is paid.

Mass discounting
It makes sense to take a step back and examine discounting and coupon in the larger context of a small business marketing plan.

The first consideration, of course, is targeting. Small companies don’t have the budgets or luxuries afforded to large companies. Food manufacturers, for example, are very effective at using coupons, the Sunday paper being a perfect example.

The reasons they’re effective are mass distribution – they print hundreds of thousands of coupons, offering untold amounts of cash discounts – and mass appeal. Their target market is essentially anyone that goes to the grocery store or buys food.

Small business promotion
Discount promotions like Groupon are quite a bit different when used by a small company. You don’t have the option to target your audience, and targeting is the most important part of a promotion when budgets are low and risks are high. I don’t think you’d argue that a 50% discount is a potentially high risk marketing expense.

Groupon’s emails go out to everyone in a specific geographic area, and you have no ability to target your reach.

The concern, particularly for smaller, locally-based businesses, is that you attract not only customers that really aren’t right for your business, but the type of consumer that is only motivated by price slashing.

The Bottom Line
Be very careful about using daily deal mass discounting to acquire new customers.

Think about how it can downgrade the image of your company to your current clients, damage your brand, and attract a group of clients whose only interest is in a “deal.”

You can quite likely do much better with laser targeted promotions to your ideal type of customer. Easy and cheap marketing is rarely the profitable marketing.