7/5/2011

WEBINAR BROUGHT TO YOU BY:

W W W .THINKSOCIALMEDIA. COM

SOCIAL MEDIA WORKSHOP

Is GroupOn good for your business?

Paul Cubbon Webinar March 9th 2011 Paul.cubbon@sauder.ubc.ca www.blogs.ubc.ca/paulcubbon/
Speaker notes in each slide provide reference links and more resources

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Less than $15 to the salon for 1.5 hrs?!

Follow the money. Consumer pays Groupon $29 for $130 value Salon gets $14.50 from Group-on; installments over ~4 months Salon costs include staff, product, rent, utilities etc. Some costs fixed, some variable BUT, a loss maker on the single transaction SO, WHAT HAPPENS NEXT ?

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What happens next

IF Groupon customer is a NEW customer she could: Return to buy at full price; Only return when deep discounts are offered; Influence other consumers, positive/negative Impact staff morale, positive/negative Impact customer service, positive/negative Think Lifetime Customer Value in different scenarios

Variations with upside

If 2 people consume $40, Pivo gets $25 & possible repeat
Expiring inventory; plus time controlled entry slots - $11 vs. $0

Groupon Gap deal

Aug 19th 2010 - $25 for $50 value 441,000 groupons sold = $11m+ First national deal for local model Mutually attractive advertising?

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Academic study 1
Harvard: Is Groupon good for retailers? Jan 10th 2011 Working paper: To Groupon or not to Groupon? http://www.hbs.edu/research/pdf/11-063.pdf Key themes
Price discrimination Advertising benefit

Structured approach to questions businesses should ask before deciding

Academic Study 2
Rice University, Fall 2010 150 Groupon businesses in 19 cities (6/09-8/10) 66% profitable; 32% unprofitable.
Restaurants were the most unprofitable category, describing Groupon customers as "entitled," poor tippers, and definitely not repeat customers. Spas, on the other hand, were the most profitable (though their Groupon-using customers were still bad tippers). 42% said they would not use Groupon again

Recommendations include: selective, partial offers, designed to link to repeat behaviour.

Living Social

Competition

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Jan 19th 2011: Living Social Sells >1 million Amazon coupons: $13m+
Like Gap Groupon

A national, mass advertising play For Amazon, a $15 discount off of normal basket.

Swarmjam
More competitors. Barriers to entry?

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eConsultancy view
Group buying and the new customer acquisition lie Jan 20th 2011

eConsultancy cont.
Patricia Robles:

Experiments with higher price, higher margin items

Example:Fashion start-up Average consumer spend = $500 Groupon is -$150 at $50 cost to consumer Run in multiple cities Fall 2010 Net from consumer on purchase = $350 Company also gets $25 from Group-on, in 3 staggered installments. So far, only ~10% redeemed Intent is to follow-up with custom messaging to gain repeat purchase and leverage word of mouth

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Tourism Operator Groupon example

Offer: $27 for 2 adult passes& voucher for product from gift store Equals 50% off the retail rate (plus cc processing fee) Offer delivered to 113 800 Grouponmembers 39 000 opened the offer 543 bought the offer Operator was paid $13.50 per voucher sold (~25% of normal price) 390 vouchers redeemed (= $19 value per voucher earned) 150 unclaimed (and not yet expired) Grouponvisitors brought a total of 85 (full) paying guests with them Grouponvisitors spent an extra $1450 total in the gift store WHAT Qs WILL YOU ASK TO ASSESS IF THIS IS A GOOD RESULT?

Business strategy and potential role for deep price discounts?

STEP BACK Why offer discounted pricing at all? How does it fit your business model for
Customer acquisition Retention Revenue growth ..or short-term cash management? Margin management and profitability?

What are the long-term as well as short-term implications? Will deep discounting be the new norm in your category? Can you WIN with this tool? Will you start a price war?

The cocaine analogy

High-low pricing is devastating to the consumer s opinion of your brand.

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Demand peaks and valleys

B Example of seasonality A C

The last scenario is what you should be trying to achieve with any price discounting. But for it to work, your core offering, the brand experience and perceived benefit has to superior to the next discounting competitor.

IF price discounting, alternative choices to Groupon, etc

Coupons in existing media Loyalty cards Fundraiser books Direct promotion

Should Groupon have accepted Google s $6 billion offer?

Google Offers News leaked Jan 20th 2011

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Why we invested in Groupon

the power of data

VC Greylock explains investment as a focus on the data and potential to customize offerings
Techcrunch interview, Jan 11th,2011.

What might happen in the next year?

Volume of deals continues to increase, raising consumer expectations for deep discounts as the norm. Aggregators of discounts help consumers sort through the deals. (MS Bing March 2011 announcement) More extreme deals will be offered by those trying to stand-out on low price. At some point, the sale price becomes the list price. Each operator should press pause until it has its own thought through strategy. Focus on value-add differentiators.
http://bit.ly/eVpfZdeConsultancy March, 2011

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What this means for tourism operators

Near in vs. long-haul market One time vs. repeat business model Low vs. high margin Hotels and accommodation Bars/restaurants/retail Spas/beauty/gyms Adventure/experience/outdoor operators

Takeaways

What is your marketing strategy? Where does price discounting fit into this? (if at all.) Work through margin as well as revenue implications. Look at longer-term as well as short-term:
Financial brand

Can you customize to improve effectiveness?

Partial discounts Time controlled Linking to subsequent behaviour Leveraging social media during and after usage.

If you decide to price-discount, is Groupon (or a similar aggregator) your best choice?

Q&A

Questions? Comments?

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