Making the Most of Group Discount Offers

A colleague recently relayed the following story regarding one of those group discount offers, and it's a perfect case study of how small businesses need to set themselves up for success when participating with sites like Groupon, LivingSocial, or TeamBuy.ca (for you Canadian readers). First, my colleague's story:

"In May I bought a 50% off Groupon offer for a massage. I actually went for the massage in July and learned that the woman who placed the Groupon special was a sole proprietor. She had almost 500 people take advantage of the offer. She only made about $17 per massage, so to make this pay off, she needs people to come back."

While I'm sure the masseuse in this example loved the publicity and getting new faces in the door, getting 17 bucks for a massage is not going to pay the bills. When you lose money on every sale, you can try to make it up in volume -- but we all know that's a losing cause. As my colleague points out, her masseuse has two problems:

• How does she get the nearly 500 people easily scheduled for their massages? (Remember, she's only one person.)
• How does she get repeat business from these people and start building a relationship with them?

The first issue is one that any company has to consider when offering a mass discount to consumers through sites like Groupon. There have been reports of ratings and rankings getting trashed on sites like Yelp after coupon buyers overwhelmed the business and service suffered as a result of the sudden influx. When putting together such an offer, you have to make sure you can handle the load from a logistical standpoint and take the short-term hit to your balance sheet. If you have a slow season, that might be the time to offer a group discount to attract new customers when you're not already super busy.

Second, and more importantly, you have to be able to make a connection with these new customers so they become repeat customers. Providing great service -- even though you're probably losing money on the deal -- is essential. If the new customer has a bad experience, you're going to have a hard time luring them back in the door no matter how you connect with them in the future.

Assuming the service is good, you have to make a concerted effort to collect contact information from these newfound customers so you can market to them in the future. Allowing them to come in the door, get the great deal, and leave without getting them in your database is a wasted effort on your part. (Truth be told, you should be soliciting contact information from every customer who comes in the door.)

At a minimum, businesses should be collecting email (and permission) from customers so they can send those customers follow-up emails to gather feedback as well as future newsletters and promotions. This contact list can then be used to advertise other ways customers can connect with the business: Facebook, Twitter, Foursquare, et al.

Good service and that one email address is the key to starting a relationship with new customers coming in for a deal. If the relationship is nurtured and you get a return visit, you derive value from your mass discount offer. That's a winning business model.