Are discounts good for your small business?
I probably need to be upfront with you. I am not a bargain shopper. I experience no thrill with a discount coupon in my hand, if I’m lucky enough to remember it.
Yes, I understand there are those who are coupon and bargain shoppers. I see them in the grocery stores with their portfolios brimming with coupons and I see the glint in their eyes as they double check the check-out register to make certain it subtracted every coupon. But that is not me.
The real question for you as a small business owner is: Is this your customer?
Do you want your customer base to expect, perhaps demand, that you offer them a discount? I don’t think so. You work hard enough to bring your customers your merchandise. You have overhead to cover in rent, staff, utilities, and let’s not forget your salary. Do you really have the luxury of offering discounts?
So, why would you sign-up for a Groupon or one of its many competitors to offer a discount deal to customers?
I don’t know that you would and if you are seriously considering doing so, you may want to review the following possible pitfalls in making such a deal.
1. I am a firm believer that small businesses ‘train’, yes,’train’ their customers to react to them in a certain way. If you’re always offering your customers deals, chances are they will only visit you when you have a deal and not when they want or need what you have to offer. You have basically devalued your brand and your product offerings.
2. While there is a segment of every market that might be labeled ‘bargain shoppers’, there is nothing that says small businesses need to carter to this segment. If they want what you have to offer, they should be willing to purchase it at a fair price. If not, so be it. Let your competitor loose money on this group.
3. Offering discounts no longer delivers the punch it once did. What used to be an unusual has become mundane and boring since every business does it. Offering 10, 20 or even 50% discounts don’t create a even stir among customers because it is so overused.
4. Once a small business jumps on the discount wagon, it is darn difficult to get off. Customers, even your loyal customer base, may have come to expect your discounts. You’ve created discount junkies and now you have to figure out a way to wean them off of the discount wagon, which can be costly and time consuming.
5. According to a recent study by Rice University’ s Jones Graduate School of Business conducted by Utpal Dholakia, discount deals through Groupon and its many counterparts are most beneficial for consumers and not for the small businesses offering them.
“I think these findings show that social promotion companies (e.g. Groupon, LivingSocial, etc.) need to better balance consumer appeal with positive outcomes for the small businesses offering them,” Dholakia said. “Right now, these deals are tilted too far in consumers’ favor.”
Dholakia outlined some strategies for success:
* Use promotions for building relationships instead of creating one-time transactions. Instead of offering $60 worth of food for $30, parcel it out to offer $20 worth of food for $10 over the customer’s next three visits.
* Don’t offer discounts on a total bill; rather, offer a specified discount for various products or services.
* Choose items judiciously to sell unpopular items or use unutilized services through the promotion.
Check out the complete report on How Businesses Fair with Daily Deals
If you are a start-up in need of exposure, Groupon-like deals may be beneficial in getting your small business established. If you want to test a new product offering or tap into a new audience and collect consumer information, a daily deal promotion might be an interesting approach. But even in these cases, small businesses need to have very clear goals and be very careful about how the deal is structured, what they are offering and the frequency of their offers. They also need to consider how daily deal promotions fit into their overall marketing strategy and marketing plan. If there isn’t a natural fit, don’t do it.
- Why Groupon Sucks for Small Businesses (pcworld.com)
- Marketing to Women: Only 1 in 5 Groupon Users Return (jamiedunham.wordpress.com)
- 10 Pros And Cons Of Using Groupon (businessinsider.com)