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| Travel mug with lid by Lorrie |
This article is written by Lorrie Veasey from Lenny Mud on Etsy. She is a pottery artist with experience in crafting and selling handmade products. Here she shares her thoughts on the topic of huge discounts, provoked by Bob Phibbs' book "Groupon - Why Deep Discounts are Bad for Business".
You may be familiar with online coupon sites such as Heartsy or Groupon. Vendors offer a sizable discount - usually 50% or more on their goods or services. Have you also considered trying it out?
Gap recently offered a Groupon for $50.00 worth of merchandise at $25.00, and the Chicago Tribune reported that a whopping 445,000 Gap Groupons were sold.
It might sound like a savvy way to bring in new customers and boost sales but according to Bob Phibbs, the author of Groupon - Why Deep Discounts are Bad for Business, retail sale reports showed that this decision may have directly contributed to the 8% loss that Gap reported soon after, leading to the exit of their CEO and marketing director, and having a negative impact on the company's stock.
This type of scenerio is not limited to Big Business - small businesses have been affected too. Consider Posie's cafe in Portland, Orgeon: three months after offering a Groupon coupon, the owner could not meet payroll after losing $8,000 in profits from the discount offer.
Now think about the situation faced by many independent craftspeople. You have typically created your product at half the cost that you are selling it at. If you offer 50% off on one of the sites - and after fees get 23% of what you normally get $100 for, that's pretty dangerous.
Do you still think that this is a great way to do business? Yet, people offer discounted online coupons all the time.
Do you still think that this is a great way to do business? Yet, people offer discounted online coupons all the time.
The appeal of on-line deals like Groupon or Heartsy is based on the beliefs that:
- any publicity is good
- the discounted cost is a marketing cost
- online coupons are a great way to expose your store to new customers who will return without the lure of a discount.
In his book, Bob Phibbs shows that couponing attracts customers, who are completely different from regulars. Many couponers are just looking at you as a way to get things cheap and there is no loyalty. Retailers using discount coupon sites train customers to wait for the next coupon from either your store, or a competing one.
What is more, discount coupons can actually anger or alienate longtime, loyal customers. If they see someone else getting $50 worth of merchandise for $25, they will ask "Why didn't I get that deal?"
The author encourages you to ask the following questions before committing to online couponing:
- What is the average number of customers a vendor gets?
- How many repeat customers does a vendor get?
- How much do you have to sell per customer to make back the money you lose on the coupon offer?
Groupon - Why Deep Discounts are Bad for Business is a really informative book, which also reminds that customers are expecting an exceptional experience from your store, not simply low price. If it is just about the price, then guess what - someone else will quite likely have it cheaper.
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About the author of this article:
Lorrie Veasey is based in New York City. Her handmade pottery, which is created with non-toxic, lead free eco-friendly materials, is available on Etsy.
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