Be careful when offering web offers and specials
January 13, 2012 1 Comment
When a consumer spots a brand on social media, they expect some degree of interaction with that brand. It could be an actual conversation. It could also be a special offer, either offered directly to social media subscribers or through a third party such as Groupon.
As one small business here in Philadelphia recently learned, you need to be careful with such offers. If you don’t know the risks and too many consumers take you up on the deal, you can find your business in a world of financial hurt.
Problem Number 1: Not knowing how Groupon web offers work
The business in question, Food For All Market in Philadelphia’s Mount Airy neighborhood, is a small specialty grocery/deli shop for people with food allergies. Last year, it entered into a three-month deal with Groupon allowing an unlimited number of customers to get $30 worth of merchandise for $15.
The first problem came about because the store’s owner, Amy Kunkle, got caught up in the buzz over Groupon and web offers and didn’t quite know what she was getting into. In addition to the actual discount, Groupon also took an additional $8 for each sale made using the offer. So while the deal was $30 of merchandise for $15, Food For All was actually losing $23 on each $30 sale. It was almost giving away $30 of inventory on each sale.
Problem Number 2: Too many consumers taking up the offer
According to Newsworks.org, 451 consumers used the Groupon offer during the three-month period, an average of five per day. Between the steep financial hit on each sale and the number of customers taking advantage of the offer, Food For All came out $10,000 in the red during this period.
While a major chain business could survive a hit like that, Food For All could not. And this week, it began a liquidation sale, and will soon close its doors completely.
This story is not to say that businesses should avoid Groupon and other web offers entirely. They can be very valuable for drawing attention to your brand, bringing in new customers and hopefully keeping those customers once the offer ends. But there are lessons that other small businesses like Food For All can learn from this unfortunate story.
Do your homework about web offers and how they work: Like with any communications tactic, web offers won’t succeed if you don’t utilize them properly. Make sure you do your homework before offering that great discount.
The steeper the discount, the shorter the length of the offer: Had Food For All only offered this special for a day or a week or even just on one day a week for three months, it would probably still be alive today. But it couldn’t handle the financial hit from giving away more than 75 cents on each dollar of a $30 purchase. If you want to do a big special like this, limit it to a short period of time.
Read the fine print before signing on with third parties like Groupon: This is self-explanatory. Make sure you completely understand what you’re agreeing to before signing the contract.
Consider getting insurance to protect you: When businesses run contents where they could potentially be on the hook for a large prize (such as TV game shows), they sometimes take out insurance policies to protect themselves against the resulting financial loss. If you’re going to offer a major discount that could go viral and be utilized by too many people, you may want to look into getting insured as well.