Living Social, Groupon, Scout Mob, and other online group-buying services have been seeing rapid growth over the past months, and have the propensity to generate rapid recognition for nearly all small business ventures, but problems can arise when advertising plans are not fully evaluated. Here we share how current social media services can alienate regulars and hurt bottom line if not approached properly. When a business owner miscalculates how an advertisement of this nature will affect their business it can end up costing them a remarkable amount. In conventional advertising like mailing lists, email blasts, and SEO money is spent upfront, but with social media coupon marketing there are no initial costs and recognition is paid for with deals. Here is what savvy business owners are doing to avoid losing a bundle on coupon marketing.
One of the most important aspects a business owner must look at is the cost of a new customer. For clothing retailers this may be anywhere from 30 percent to 60 percent of the sale price, but the owner of a movie theater who is trying to fill seats has essentially zero incremental costs. Greg Gibbs the owner of a Chicago based bagel shop is an example of someone who did not take incremental costs fully into account. He signed on with Groupon for a deal of the day promotion, sold 10 times what he expected, and by the time it was all over he had netted around $15,000 for $80,000 worth of food. He did get a large amount of publicity throughout this period but it is doubtful that he will see a positive ROI.
As we go through this article the most important concept to pick up is track your numbers and do the math. This is a principle that is important in any aspect of business but it can be seen where it is even more vital when considering this marketing channel per the Greg example. If you were ordering a business mailing list you would know upfront how much it cost and could easily calculate ROI. People tend to spend cautiously when there is a lump sum that is paid out up front, but incremental payouts harbor bad habits. So when making a deal with a social media company think about the percentage they will take, the discount given to the customer, and incremental costs spoken about previously. Many business owners go into this deal thinking they may actually make money off the couponing process but that is rarely the case.
After incremental costs are taken into account there are various other factors to look at. How many coupon buyers will turn into regular customers? If everyone ends up being a bargain shopper and simply taking part in a good deal then the advertising investment is blown. There will also be a percentage of regular customers who take part in the offer or may become perturbed by the bargain shoppers which can result in a loss from standard revenue.
The amount of an average sale is another factor to consider. Many customers will spend the exact amount the coupon is for, but this is not always the case. The point here is to record what customers are doing so that you can determine if this venture is profitable for future use. Companies also see marketing value from users who do not necessarily buy the bargain presented but recognize the business in ads. The deal acts as mobile billboard, and in many cities the audience can be in the hundreds of thousands.
What truly matters once you take all the other factors into account, is the amount of money it takes to get a new customer through other forms of advertising. If it is cheaper to gain customers through other marketing channels then stick with what works. This is where tracking and analytics are crucial to the decision making process. Negotiate the percentage Living Social or Groupon takes to make it at feasible campaign and if costs are not low enough then simply choose another route like direct mail or PPC. The social media coupon services are not beneficial for all companies and have the ability to cost thousands with dismal returns. Advertising practices change continually while math remains relatively constant but the numbers are essential to a successfully marketing through any channel and vital to social media couponing. This avenue can be both good and damaging but it is possible to roughly determine the outcome with good analytics and math so stick with the numbers.
What have been your business experiences with social media couponing services?