The pioneer of the daily deal model might be facing lawsuits and scrutiny from the Securities and Exchange Commission, but it remains a top marketing choice for Fairfield and Westchester business owners who price-cut strategy equates return.
“Early on it was clear it would be a great vehicle for all kinds of business,” said Whitney Lucas Rosenberg, associate director of development at the Bruce Museum in Greenwich. Rosenberg had her eye on Groupon while it was still exclusively in the Midwest.
The deal-of-the-day website features coupons and gift certificates usable at local or national companies. The company was launched in 2008 in Chicago, generated more than $760 million in 2010 revenue, and as of April had more than 70 million users who access the service through its site or smartphone application.
“You could tell it would really be an interesting way to increase your reach and for us to sell memberships,” Rosenberg said. The Bruce Museum did its first Groupon offer last spring. “It was very successful,” she said. “We saw saturation a bit farther out geographically than usual.”
The company offers one “Groupon” per day in each of the markets it serves. If a certain number of people sign up for the offer, then the deal becomes available to all; if the predetermined minimum is not met, no one gets the deal that day. The model is designed to reduce risk for retailers, who can treat the coupons as quantity discounts as well as sales promotion tools.
The Bruce Museum did its second offering with Groupon in August and will be doing its third in a matter of days. The museum offered a dual family membership, normally $65, for $30 and an individual membership, normally $50, for $25. Each time Rosenberg has tweaked the deal parameters.
“It”™s a great way to reach people you”™re not reaching through your normal marketing channels.”
Seth Friedman, owner and president of Rye Ridge Cleaners in Rye Brook, N.Y., said as a small-business owner it has become apparent Groupon is the online coupon that has the most visibility in the Westchester and Fairfield markets. Other large online deal sites such as DailyDeals and LivingSocial, still have yet to catch on in the way Groupon has in the area. Facebook, Google, user-review specialist Yelp and direct-mail coupon distributor ValPak have all also gotten into the game. Last December, Groupon founder and CEO Andrew Mason rejected a $6 billion offer from Google to buy the company.
“Groupon applies so well to the small businesses because it”™s a boost, you see their effect right away,” said Howard Davidowitz, chairman of Davidowitz & Associates, a national retail consulting and investment banking firm headquartered in New York City. “With Groupon you”™re seeing that boost in a way the customers and the businesses have never seen before. It has great return appeal.”
Davidowitz said with Groupon the model of couponing, which has in the past ranged from marginal success to complete failure, almost across the board sees positive effects. Though the drawback of that unprecedented success is a long list of tremendously well funded and technologically advanced competitors.
“I think that”™s going to be the real battle for Groupon,” said Davidowitz. “One thing Groupon has is a very high margin and all of that will come under attack. To stay ahead they”™re going to have to evolve very rapidly.”
Davidowitz said Groupon should be concerned about competitors like Google, taking their basic idea and amplifying it.
“At the start Groupon was like the wild west, just racking up these customers,” said Davidowitz. “Their big problem is they don”™t actually own any customers. The customer and the businesses can switch very easily, everybody is free to go to the better service on both sides of the equation, the business and the customer.”
Friedman learned of the service from a neighboring business and recently offered $60 worth of dry cleaning services for $35. Friedman sold 322 in two days after posting the deal.
“We”™ve been very impressed and have gotten a very good reaction,” Friedman said. “I haven”™t done an exact evaluation, but looking down the list of people who bought the Groupon, most are new customers. I don”™t recognize about 60 percent of the names, which is great.”
The parameters of each Groupon are set before the sale, including price, time available to purchase and amount of time a buyer has to use the deal. Friedman said he planned his Groupon to be able to be used through February because it is typically the slowest month for dry cleaning. Groupon on average takes half of the amount spent on each deal. For each $35 spent on Groupon for Friedman”™s service, Groupon would take $17.50.
Rosenberg said before taking the plunge into the service she picked the brains of other museums in the nation that had used Groupon.
“I found ones that were in similar areas and ones that were of comparable size to get a feel for how and what they did,” Rosenberg said. “Their advice was to do research, understand the structure, make sure you”™re timing and pricing properly, and make sure you have a system in place to handle the volume in case it”™s wildly successful.”
Rosenberg said that not being able to cover the volume derived through the Groupon deal could have the opposite of a desired effect, and even drive regular customers away.
“It”™s such a great model because it can give you such a great result,” Rosenberg said. “Proportionally, it could affect anybody”™s business in the same ways. It has some great powers in terms of marketing and spontaneity.” She said it enables people to impulse buy with convenience.
Adam Ofer, of the Avery Center for Obstetrics & Gynecology in Westport and director of gynecology at Norwalk Hospital, recently created a standout Groupon deal for the Avery Center. The offer was $1,260 worth of laser hair removal services for $99. The deal sold out in less than a day when it hit its cap of 500 sales.
“Groupon wants the merchant to give the best deal possible because you are essentially representing the service of the equation,” said Ofer. “I am not disparaging them, but as the business owner you need to understand it”™s about finding the balance that works for you.”
Judy Lanzilli, co-owner of GéMargot Salon in Rye Brook, N.Y., recently finished her first round of Groupon and sold 556 deals in 48 hours. She offered a 53 percent discount on a $75 manicure pedicure session. Lanzilli said it was important for her to consider service versus product. She said by offering a deal that is more involved in service you can hedge your bet without detracting from the value of the deal. Since the deal ended Aug. 7, more than 200 customers have come in to use their deals.
“It was almost entirely new clientele and we”™ve already had repeat on that,” Lanzilli said. “For us getting that many new faces is an amazing thing; it”™s about creating that connection, that relationship, showing what we have to offer and hoping they come back.”
Groupon allows businesses to engage in three deal offers each year. Lanzilli is already planning to do a second.
“Generally you”™re not making any money on the deal,” Friedman said. “But that”™s not necessarily the point. People change cleaners when they move or are disserviced. Deals that have a dramatic impact have to be big to grab them and pull them in.”
Friedman said he knows that of the 322 people that come in for the deal some will only be coming in to take advantage of it.
“I get five or ten regular customers out of it I have made back everything spent on offering the deal,” he said. “Advertising and coupons rarely works for a business of this size, but here we automatically get to have access to all these people through a technology that is very hot right now.”
