“Colpus”, “Colaphus”, “Colp”, or in modern French “Coup” are variations of the word Coupon that means a portion that is cut off. Coupons have been used by marketers for decades within their marketing strategies. Free samples, re-funds, premiums, point- of- purchase (POP) promotions and coupons are some of the major sales promotion tools used not only to attract new customers but also to increase sales at the marketplace. I am sure that many of you have wondered at least once who pays for coupons? Are the companies incurring in an expense issuing them? Is there a real analysis behind these certificates? Do they represent a loss for companies? Are retailers or manufacturers reducing significantly their income taxes with them? If they are so good strategy why companies have declined the use of the coupons in the last years?
According to John Zdanowicz , a Corporate Finance professor at FIU Business College, discount coupon prices are calculated by companies in most cases in a safety way that avoid losses. They use something call Loss Leader Strategy through which offer non profitable deals in order to attract customer who may buy another product as well and get compensated for the discount. Many companies avoid backlog of perishable products selling them for less, or reduce the net profit margin of their business to increase sales and catch the attention of price-sensitive customers to get in reward brand and customer equity. But what was wrong with Coupons? Why companies lose confidence in those once powerful tools? The muddle of issuing coupons as a paper certificated and being falsify by unscrupulous customers who wants take advantage on that were responsible for the agonizing life of the coupons. Also marketers realized that a high percentage of the customers who actually redeem coupons, do not buy more than those products in discount.
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Two years ago in response to this issue, Andrew Mason, founder and CEO of Groupon brought to the public a new business model which is a mix between technology and a traditional marketing promotion strategy. It is a social- networking -massive- coupon purchase that seems to be an excellent option for many local businesses in 52 cities here in U.S. to boost their profits. How this works is the company offers to other firms, let say restaurants, spas, theaters, sale discount coupons for their products or services through the web, but these coupons will be activated just if a certain amount of them are sold. That allow retailers estimate the breakeven point and come up with the number of coupons that they can issue without incurring into losses. But how much get Groupon from this? Is it a simple transaction fee? It is a reasonable percentage of coupon’s value? The answer is No! , according to Julia Boorstin, a correspondent from CNBC, they get 50 percentage of what customers pay. Oh yes! 50 percentage! That is amazing, isn’t it?
Well, let me tell you something, I have read negatives comments from a restaurant’s owner in Chicago, who had a bad experience with Groupon. It was not the company itself. It was the consequences that its business model brought to her business. She was losing money due to the overwhelming number of customers who were using their coupons (actually they were buying more than one coupon in a single family when it was supposed to be one per household) taking places for non-coupon customers who usually visit the place.
It is true that the advantages are indisputable, free advertizing, better control over the coupons, safety procedure, comfortable for the client, rapid spread of the brand, peer pressure to buy coupons to get them activated, but It is really a sustainable business model? Are they selling a concept that will be suitable for everybody? Is Groupon’s policy fair compare with other's firm policies such as Gottahalfit.com which gain less than that 50 percent that it charge?
I encourage retailers to do a research before to be part of any kind of service which promise wonderful things. There is a only way to make a good decision in business, analyzing the data, as said one of my professor “In God we trust, the rest bring the data”.
I found it to be a slap on the face, what Groupon is actually getting from all of this, 50%! That is way too much profit for every discount that pople buy, and I think that in some way they should put some restraints in the usage of this so called 'groupons" or otherwise take some responsibility in the fact that while it seems a really good deal for the users it's not that good of a deal for the business that offer the discounts. Groupon will start to loose clients if they do do anything about the repercussions that it's bringing to it's clients.
ReplyDeleteRight now, even with a high unemployment rate, people are more eager than ever to find retailers and restaurants that are offering discounted prices or have the word sale printed in big capital letters. Although it is the reality that price sensitive people will incur in unethical behavior when it comes to discounts, I don't think the group buying business of Groupon is an evil business. Regrettably bad experiences such as that local restaurant in Chicago may be due to bad finance advisors that failed to do a good breakeven analysis for their business (just as FIU's finance professor said they ought to) in order to release profit-safe coupons. Groupon's idea to combine online social networking with daily deals (very discounted deals) is one to be continuously monitored in the future. With just 2 years of release, it has been doing pretty great and it seems as if companies have embrace that 50% profit for Groupon while returning with more sales.
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