Here's a blog post [posiescafe.com] by a business that used Groupon and lost $8,000. They wrote the blog post as a response after the news of their situation went viral. There are other un-success stories around [retaildoc.com] as well as success stories on Groupon's site [grouponworks.com].

I guess that a lot of the companies that sign up to coupon sites are hoping that people will come back and pay full price for that product or service again. With so many offers though (I can get up to 8 a day for London alone) people can try out the same thing at a discount, e.g. spa treatments, at a number of different places.

many people can't calculate their actual costs.
many people don't even know what their margins are.
many people wouldn't have a realistic plan for what they are hoping to achieve from coupons (or indeed any other promotion)

the advice of the salesman and the numbers/stats he gives you should always be considered in conjunction with independent data!

just because everyone else is doing something doesn't make it right for you

Thanks for the replies everyone!

Yeah, I'm just trying to figure out how these "discount coupons" work to turn a profit because I don't think ecommerce sites would be using them constantly if they weren't making money off of them.

Financially the logic doesn't make sense to me because I feel like once the "discount coupons" are applied it pretty much takes their profits completely away or they end up with razor-thin profits.

olimits7

...or they end up with razor-thin profits.

That's one way of looking at it. It's not unreasonable to expect a rise in earnings in exchange for an investment in advertising. That's the Return on Investment (ROI) everyone talks about.

But that's not the only return on investment that can be achieved. The ROI can also be viewed as the cost of expanding the customer base. I've spent thousands of dollars in advertising to grow one of my sites. It wasn't arbitrage, I didn't make X amount for every dollar I spent. But the site did grow and became a bigger fish in the pond- which was my goal.

This is one area where people miss their chance to grow. They spend a significant amount of money on building the website, the menu, creating an ambiance. Then they cheap-out on promoting it.

[edited by: martinibuster at 7:51 pm (utc) on Dec 1, 2010]

I don't think ecommerce sites would be using them constantly if they weren't making money off of them.

I wouldn't assume that. You have no idea what the motivations are.

Did the banking sector, for example, make all those risky loans because they made sense for their bank's long term profits? The were made because most of the big banks (CITI, BOA etc) were doing it and because banking executives, like Dot Com execs a decade before, are motivated by short term personal goals, such as quarterly bonuses and stock options. Governmental pressure to make risky loans has also been alleged.

Keep in mind that some businesses are driven by stock market considerations if they hope to go public (IPO buyers insist on rising sales, but not necessarily profits). Others have loan covenants that may fall into default if sales drop.

Yes, and some business owners (and shareholders and lenders) are simply stupid.

Thanks for the replies...you pointed out some very interesting points!

Yes, and some business owners (and shareholders and lenders) are simply stupid.

Hahaha...I definitely agree with this statement! :-)

many people can't calculate their actual costs.

That's very true, and it's most likely what fuels the endless supply of dirt cheap sites and eBay stores. People figure if the stuff is going out the door, then they're making money. I'm actually pretty good about keeping on top of stuff, right down to the cents for each fastener used on a product, and even I still have a heck of a time keeping it all up to date. So for people who are bad at that stuff, you could easily be losing your a**.

Plus, for the big companies... Don't forget the room full of accountants that can take a loss and spin it into a gain. Or at least break even.

I also see this in my market as well. Most people in my market have to adhere to MAP policies (minimum advertised pricing), however every so often a unauthorized seller begins selling at a steep discount. They run advertisements on Google in competition with us, and start to take up all of the clicks and conversions, leaving little for the rest of us who are following the rules set forth by the competition. However after a period of time most of these sites disappear, probably because they didnt realize that there are so many other costs besides the cost of their good being sold.

I received some bad advice when I first started out from my PPC manager that I should discount, and its ok because thats the way to drive sales and make an effective PPC campaign. Well I did that for a few months and then I found out that most of my manufacturers had MAP policies. Also the PPC manager was not managing my account that well, so I fired him, raised my prices to the MSRP, and ever since then have been MORE profitable believe it or not. And another thing, I actually retained clients better than when I was discounting! My PPC costs did go up quite a bit, but eventually with repeat customers that started to make up for that.

I think that sometimes people get in over their heads or get desperate, and decide to start doing crazy discounts just to move inventory that has been laying on their shelves. I wish someone would tell them NOT to do this because in the long run they will just eventually loose more money and go out of business.

sorry in my post above I meant to say "the rules set forth by the manufacturers" instead of companies

Zappos is plenty competitive without playing the coupon game:

Many online sites may claim to have Zappos.com coupons, but the truth is Zappos.com does not offer coupons or promotion codes.

[zappos.com...]

Then they cheap-out on promoting it.

I come across this all the time. People are hesitant to spend money on SEO or even PPC. The problem is that with such services, especially SEO, they don't get a tangible work-product in return for their money, at least not right away. They have to pay for the work, wait a while and then start seeing the results. This is different than paying $10,000.00 for a website, and see its progression as the developer works it to completion.

A lot of companies are willing to offer these coupons at a loss and put the costs against their marketing budget.

Typically they aren't trying to make 1 sale per coupon.... they are hoping to make 1 repeat customer per coupon.

Factor in the redemption rates and use some smart tactics and these can work out really well for companies.

One tactic to minimize the costs, for example would be a cleaning company offers a $80 coupon for $40 but their cheapest service is $120, so even if they only get $18 from the $80 coupon they will still get another $40 on the cheapest service which means they get close to $60 for a $120 service... not too bad... if they can retain the customer even better.

Typically they aren't trying to make 1 sale per coupon.... they are hoping to make 1 repeat customer per coupon.

I'm not ecommerce anymore, but the idea of repeat customers is a given in my industry. In fact it's common to build up a large client base then basically retire. Once someone has some many thousands of clients in my business, the repeat business is steady enough to live off of with no further advertising or promotion.

Despite the fact that I make money from each sale, there's definitely a long term value as well to each client.

One of the "getting your money's worth" moments at PubCon LV 2010 was when a speaker in the coupon business provided a brief overview of the best ways or reasons for "~doing coupons": Excess inventory? Coupon. Slow season? Coupon. Brand loyalty reinforcement / customer retention. (Buy product. Get coupon for next purchase.) Coupon. Etc.

I don't recall him being overly impressed with coupons as a (loyal/repeat) customer acquisition strategy, i.e., if that's what you're thinking will be the benefit the data doesn't support the inference.

I guess like everything else in business it's a case of "test . . test . . test", all the while probably "testing assumptions" - like "will this work as a customer acquisition strategy" or will most "coupon customers" be one-timers - and hopefully not going broke in the process. :-/.

if that's what you're thinking will be the benefit the data doesn't support the inference.

Perhaps not but the reason for my example is one of my clients did exactly that for a brick and mortar cleaning company. They sold over 700 coupons and had to hire new staff for all the bookings. It was about 8 months ago and the coupons still trickle in and they have signed up a lot of contracts for weekly/monthly cleaning services.

A fringe example for sure, but I think it shows that different business models can benefit in different ways from these coupon sites. Some business models may not be able to benefit at all from them.

I guess like everything else in business it's a case of "test . . test . . test", all the while probably "testing assumptions"

Totally agree... be creative, but be mindful of your liability.

So, what is Google looking at?
[webmasterworld.com...]
[online.wsj.com...]

I somehow have my doubts that you can turn those bargain hunters from groupon or other coupon sites into repeat customers. I think it is more likely they will simply look for the next bargain elsewhere when they need to order again.

At the very peak of that asinine late 90s Beanie Baby craze, a local gift shop got a lot of publicity by loudly announcing they were discontinuing selling them.

The shop sold tons of beanies, but their core business had been utterly disrupted by callers (often little kids) wanting to know whether the latest hot beanie was in stock. Phones rang all day. The shop's loyal clientele wanted higher end statuary and the like and there was often no clerk available to wait on them.

It was a brilliant move by the shop to drop the disruptive beanies which would go the way of the pet rock a year later.

Around that same time McDonalds gave away mini-beanies. There was a limit on how many a customer could get. So people would buy a happy meal or two, get the beanies, and circle around the drive-in... again and again. Many hoped to sell them on Ebay.

I made the mistake of trying to grab a quick bite during that riot. I was infuriated by the disruption the beanie promotion caused.

This is the sort of disruption some Groupon sellers will face. And yes, many of the unwashed coupon crowd will move on to the next one-shot bargain.

---
Am I the only one here old enough to remember when trading stamps were huge in marketing in the mid-60s? (Top Value, S&H Green Stamps, Plaid Stamps etc). A forgotten fad now. At their peak they were far hotter than Groupon.

Most of the coupon sites I see don't even have a valid coupon/discount to offer. The page title might be - "Zappos discount coupons" the content is something like this...Click to View Zappos Deals, when you click the link the cookie is fired.

If the person that clicked the affiliate link is determined to buy from Zappos and realises there are no discounts, they will still make the purchase and the coupon site gets the commission

Am I the only one here old enough to remember when trading stamps were huge in marketing in the mid-60s? (Top Value, S&H Green Stamps, Plaid Stamps etc). A forgotten fad now. At their peak they were far hotter than Groupon.

Geez, I remember green stamps. I was a little kid and I recall my grand-ma collecting those. I think all they did was get some lame free item that they didn't need in the first place.

I personally have never been into coupons. If it's something significant that I actually use, then fine. Ralphs sends out cash cards that can be $20. I use those. Otherwise, who cares. Not to sound like a sexist, but coupons and all that have always seemed more like a female thing. I had girlfriends that were nuts about them... They'd always be dragging me to some stupid place I didn't want to go to, because they had a coupon. But then the ironic part was... They'd go out and buy a car for sticker price, without even attempting to haggle, thereby instantly erasing about 5 years worth of coupon efforts.

I've also never understood the various hoarding trends. I've seen middle-aged guys that no doubt, live in their mom's basement... waiting outside Toy's R Us for it to open, so they can storm in and rape the shelves of whatever the trend of the month is. I actually almost got in a fight with this guy once, because I was with my girlfriend's daughter, and this idiot grabbed the Star Wars figure she wanted right off the shelf in front of her, along with all the other ones. I had to make a big scene and actually threaten the guy to get it from him. The stores and manufacturers actually promote this type of nonsense. It's pretty pathetic when a 30 YO guy snatches a $5 toy out from under a little girl.

Wikipedia: "During the 1960s, the [S&H Green Stamps] rewards catalog printed by the company was the largest publication in the United States and the company issued three times as many stamps as the U.S. Postal Service."


Looking back, it was so inefficient. Economists, and many other groups hated them.

The merchant bought stamps and gave one away with every dime of purchase. The customer took the stamps home and pasted them in books. When the book was full, the customer would take the books to a "redemption center" where each was worth about $2.50 credit toward the purchase of various items, often home or kitchen appliances.

In some cases, stamps could be redeemed for products at the retailer's stores. Issuers included gas stations, department stores, small shops and supermarkets.

What killed trading stamps? For one thing, the gas embargoes of the 70s meant service stations no longer had to aggressively compete for business. Prior to about '74 gas stations gave away stamps and premiums such as drinking glasses with purchases.

Trading stamps were always controversial and many states attempted to legislate stamp policy:
[studioz7.com...]

Are we on the verge of a similar mania with web coupons as the new "currency?"

I dont remember green stamps, but that sure does sound like the current bonus cards at the grocery stores now. I think these bonus cards, which I refuse to carry, are the technological advance of green stamps.

These days a whole bunch of reward programs are the digital equivalent of those green stamps; frequent flyer points, credit card reward points, shopping "clubs", and so on.

Within the last few days I've done more online shopping than usual. I would fill my cart with the products I wanted, fully prepared to pay the stated price .... until, during checkout, I was presented with a field to enter a coupon code.

Off I'd go, back out onto the web, to hunt for coupon codes, and at least half of my orders went through at a lower price than I was originally prepared to pay.

I still haven't figured out the business logic for that ...

They'd go out and buy a car for sticker price, without even attempting to haggle, thereby instantly erasing about 5 years worth of coupon efforts.

Recommended reading: Predictably lrrational by Dan Ariely. He has interesting things to say about behaviour like that!

I own a small business that offers a specific service done over VOIP (nothing weird) and recently used a coupon site as marketing. We offered half off for one month of our service. The coupon company takes 30 percent of what we got from the new customers coupon purchases. We lose money on this deal, but next week the first batch will be running through their first month, and we'll see how many convert to repeat customers. So far, it's looking good. But we're offering a very niche service that many people need to try before they'll buy. I think anyone that considers this should think long and hard first, and do the math on the worst case scenario. Basically though, I'm looking at it as a form of advertising that you don't pay for unless you actually get customers.

Recommended reading: Predictably irrational by Dan Ariely. He has interesting things to say about behavior like that!

Looks interesting. Maybe I'll give that to my friends that keep insisting it was a missile shot off the coast the other day and not a plane.

I admit, I've used coupon codes from those coupon code search sites a few times... What's the deal with those? Are they putting those up on the slide, or is it deliberate. If it's deliberate, I don't really see the purpose.

>>until, during checkout, I was presented with a field to enter a coupon code.

couldn't agree more and i do the same as you buckworks, it's like throwing money away by the merchant?

So what would you recommend no box to enter coupon codes

While I second the above opinion occasionally we still need to promote with coupons sometimes free shipping and sometimes 5% off over x amount

>>So what would you recommend no box to enter coupon codes

there are plenty of ways to do it, make the coupon user come to a landing page which sets a cookie, check for the cookie on the checkout page and write the coupon box to the page if the cookie exists.