Whether you are a consumer or business owner, you have likely heard of Groupon. Since 2011, Groupon.com has billed itself as a site for thrifty consumers that are looking for a great deal and merchants that want to drive traffic to their stores or build awareness for their brands. Many restaurants have jumped at the chance to offer promos to the site’s nearly 44 million active users. However, before you decide to enter the fray, make sure you know the real costs of using Groupon for restaurant promos.
Groupon Restaurant Promotions Can Hurt Your Bottom Line
Customers looking for a deal are likely to find one. But the cost to merchants can be staggering. While there is no cost for restaurants to create an account and share a deal with the Groupon user base, the real damage to the wallet arrives after you make a sale. Though commission rates do fluctuate, Groupon will always take at least 50% of revenue from each sale. Let’s look at this simple example:
You run a local pizzeria and the business is doing fairly well. You’re interested in broadening your customer base and decide to give Groupon a try to see if you can get customers outside of the local area and maybe even tourists in town. You decide to offer a deal on your medium pepperoni pizzas, which typically cost $20, at a 40% discount to compete with other pizza shops on the site. Customers purchase the deal for $12. Your revenue? $6.
This Groupon restaurant promo for pizza that you would typically sell for $20 just cost you 70% of revenue. You can calculate the profit yourself since this depends on your mark up, but it’s likely just shy of breaking even. Or, worse still, you might be losing money on the deal.
The poor pizzaiolo or pizzaioli who put effort into making the delicious pie just had his/her work devalued so significantly.
Groupon Can Diminish Your Restaurant’s Brand Image
Have you ever visited a restaurant that markets itself like this? “We are a middle of the road eatery that uses discount produce and values quantity over quality. We don’t really care if you come back.” Ridiculous, right? You don’t need to be a marketing maven to recognize the pitfalls of discounting your product or service. By listing your restaurant on Groupon, you run the risk of diminishing your brand. Your high quality standards for service and food will not be recognized as such. The perception will turn to: how can it be that great when it’s so cheap?
Let’s start with your existing customers. You run the risk of annoying your current clientele by offering your meals to a select few at a discount price. Using the example of the pizzeria, a repeat customer who consistently purchases your pies might wonder why they’ve been getting “ripped-off” this entire time if your food could be had for half the price. And if they knew that you were only taking home half of the revenue from the deal, they would sour on your brand even more. Sure, that’s unlikely, but all it takes is one annoyed customer and your break-even Groupon deal just sent a sure thing to your competitor.
As for the prospective clients who found you through Groupon, you’ve now been introduced to them as a discount seller right from the start. Groupon customers are rarely repeat customers. Those on the site looking for a deal will look for another when your bargain window runs its course. “That $12 pizza was delicious, but I won’t pay the full $20. Let’s see what other pizza deals I can find.”
When the goal of any business is to build sustainable revenue streams, and the cost of acquiring customers is much greater than keeping them, using Groupon to promote your restaurant becomes a brand risk you cannot afford to take.
Can Groupon For Restaurants Be Beneficial at All?
As with any strong marketing plan, diversity of channels is the key to success. The reality is that the pizza example is oversimplified and Groupon can be a part of your restaurant promo strategy. The two most important things to remember are to not put all of your marketing efforts into Groupon and to be smart about the bargain you are offering. Groupon clients are, more often than not, one-time clients and should not command a significant amount of your restaurant marketing spend. Yes, the math starts to make a lot more sense when the 40% discount is 20% or less, but investing in promotions for existing clients is even more cost-effective. Remember, too, that Groupon is not the only restaurant deal site that is out there. Be smart, do your research, and plan for long term success rather than short term marginal gains.
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