Local business is loco for deep discount coupons, thanks to Groupon, LivingSocial, Yipit, EverSave, BuyWithMe and hundreds more copy-cat coupon-selling websites. Unfortunately, many business owners get burned by making ill-conceived offers, targeting the wrong customers – or both. As coupon sites soar and millions of local businesses join in, crafting an offer that actually makes your business more money in the long run is critical to success.
In attempting to board the Groupon gravy train, some local businesses forget the key question: Will my offer make money or otherwise benefit my business? In fact, about one in three business owners who’ve offered Groupons say they lost money, and 40 percent say they won’t do it again.
The problem, however, can often be fixed. Your goal is to attract new customers who are likely to buy again at full price. When discount offers simply provide a way for existing customers to pay less, the result is reduced profits for your business – both now, and in the future as customers grow accustomed to discounts. In most cases, coupon offers end up doing a little of both.
It’s a way to lure the most price-sensitive customers by making different offers to different groups of people on the price-sensitivity scale. Academics know this concept as “price elasticity” – basically how much consumer demand for a product or service changes in response to a change in price. The idea is to peg the offering price to the profit-maximizing point on the demand curve.
In order for your deal to succeed, the people you offer it to must be more price-sensitive than either your existing customers, or your target market in general.
Here are some profit-boosting tips for crafting an online coupon offer:
• Know your marginal cost. Deep discount offers work best for businesses with low marginal costs, where the price of producing an additional “unit” to sell, over and above fixed costs, is low.
• Be patient. Discount offers can hurt short-term profits but pay off later as new customers return and pay full price.
• Block multiple purchases. Research shows that profitability drops greatly when customers are allowed to purchase multiple coupons. Disallow multiple purchases if possible (although there’s nothing to stop buyers from setting up multiple accounts to buy your coupons).
• Gather purchase data. If possible, find out if customers who bought your discount coupons have purchased from you before at full price. You might start by simply asking them. Remember that coupons can reactivate old customers who’ve forgotten about you or moved to a competitor •
Dan Kehrer can be reached at editor@bizbest.com.
Seifert Systems Invests in Energy Efficiency to Strengthen Operations
For manufacturers, energy is more than just another operating expense. It plays a critical role…
Learn More
