Groupon-style concepts: Are they good for entrepreneurs?

Group buying for shops was a hot topic in 2010. In the video, I consider why a company might choose a campaign with a large discount and why it wasn’t necessarily a good idea for everyone.

Group buying for shops: What are you actually buying?

I first explain that I had a small investment in a company working on a similar concept. That was my interest in the subject, and the listener needed to know.

I use a simplified calculation: An item normally sells for 100 kroner, the customer pays 50, and the shop gets 25 if the service takes half. It’s an example from the video, not a description of every agreement.

If the shop’s own cost in the example is 40 kroner, it loses 15 on the sale. The question then is whether making contact with the new customer could be worth the investment.

A good experience can lead to more

A customer may return or recommend the shop to others. A clinic with available appointments might use a campaign to fill some of its capacity.

But that requires thinking beyond the discount. How do you give the customer a good experience? And why would they choose the business again afterwards?

I also mention exposure to people who see the offer without buying. That was a potential value I saw in the concept, not a documented result for a particular shop.

A campaign doesn’t solve everything

I thought group buying could be interesting for a sound business wanting to create more activity. If the only aim was to bring in money right now, you risked simply putting off a problem.

Those were my thoughts in December 2010. The point was to understand what you wanted to achieve with the campaign and what it would actually cost before jumping into it. Also read E-pusher about my experiences of online sales and marketing.

And have a great weekend 🙂 You might read this article about businesses’ experiences with Groupon

A cold day in Florida and a debate on Amino

It had been zero degrees during the night. I complain about the cold, although I know it’s nothing compared with Denmark. I don’t have to go out and shovel snow. But for Florida, it’s pretty chilly.

There’d been quite a debate on Amino about group buying and the idea behind Groupon. Before starting, I explain that I have a small investment in a company developing something similar. So you know where I stand before I discuss the possibilities.

One hamster or a thousand hamsters

I explain group buying through a visit to the pet shop. If I go in wanting to buy one hamster, I probably won’t get much of a discount.

But if I come on behalf of a thousand people who want to buy a hamster, I think I can get a more reasonable price. The pet shop might then have a problem supplying them all, but you get the idea.

A website can bring together offers like that. A few times a week, the site presents something it’s negotiated.

Why sell an item for 25 kroner when it normally costs 100?

Very bluntly, I describe the model back then as a 50 per cent discount for the customer, after which the service takes half the remaining amount. If the shop normally sells something for 100 kroner, it ends up with 25.

That’s not much. Why the hell would a shop do it? One reason could be that it has stock it otherwise struggles to sell at a reasonable price.

Another reason is that the shop sees it as an investment. I keep the calculation very simple: The item costs 40 kroner to buy and normally sells for 100. If the shop gets 25 through the campaign, it loses 15 on that sale.

But that 15 kroner can be seen as the price of bringing in a new customer. I’m talking about someone the shop can give a really good experience, build a connection with and perhaps bring back again. The customer may also recommend the products to friends.

I mention an email address as a possible way to contact the customer. It’s part of my business idea in the video from 2010, where I don’t go into the rules on sending marketing.

My comparison with Google AdWords

I thought 15 kroner to bring a new customer into the shop could be cheap. I said very categorically that you couldn’t do it through Google AdWords or elsewhere.

That’s my assessment in the video, not a general measurement of advertising prices. I also said I knew of businesses willing to pay the item’s full price for a new customer. If the item cost 200 kroner, they’d spend 200 to acquire the buyer.

If group buying can make that connection more cheaply, that’s a possible reason to consider the model. But what matters is whether that customer is actually worth something to your business afterwards.

The massage therapist and the empty appointments

I also use the massage therapist we used at SPAMfighter as an example. He had a massage clinic offering chair massage among other things and had tried the concept. I explicitly say I don’t know how it went.

He wasn’t newly established. But if business was quiet, perhaps a campaign could bring lots of people in over a few months.

Again, I use rough example figures: A massage costing 400 kroner sells for 200, and the therapist gets 100 if the service takes half. If he has spare time, he might be interested.

I imagine 400 customers. Then he has plenty to do, gets money in relatively quickly and makes contact with lots of people. If some later become regular customers, I think that could be interesting.

It’s a hypothetical calculation and my expectation of the possibilities. I’m not presenting the therapist’s actual revenue or figures for how many returned.

People who don’t buy can notice you too

I see several possible aims: Generating cash, gaining more customers to work with, using spare capacity and making the company visible. Customer contact is especially interesting if you’re good at getting people to return.

If the offer is shown to 100,000 people, I also think that can have value even if the vast majority don’t buy. I use 99,500 non-buyers as my example. They can still see the logo and be introduced to the shop.

Perhaps someone doesn’t need a wedding cake today but will in a year. Then they might remember a company that looked good and buy the cake there.

That’s how I imagine a possible effect of the exposure. It’s not a documented campaign effect for a particular cake shop.

It’s a poor lifeline if the business is about to collapse

There may be lots of reasons to try group buying, but certainly lots of reasons not to.

If the sole aim is to get a little cash because the business is struggling, I say bluntly that you’ll probably go bust anyway. You’re just postponing the pain. I don’t think that’s worth doing.

In my view, the concept is more interesting if you already have a sound business and healthy cash flow and want to give it an extra push.

My invitation back then

I finish by inviting businesses selling something interesting to women aged 20–40 to email me. The worst that could happen was I’d say no.

That was my invitation in December 2010 in connection with the company I’d invested in. It belongs to the historical video and isn’t a new campaign I’m opening here.

Best wishes, Martin