08.15.11 | Groupon Advice for Small Business Retailers
Guest blogger Michael Koploy is an ERP analyst at SoftwareAdvice.com, a company that provides reviews of point of sale system software. He recently published a guide on his blog about Groupon for retailers, titled Retail Software: Your Groupon Advisor.
Many retailers are chomping at the bit to take part in a Groupon promotion. While consumers love the online daily deals site, there have been a number of horror stories this year from retailers that have had their business negatively affected after running a Groupon promotion.
Groupon isn’t all that bad, though. It’s important for retailers to understand how Groupon promotions work before deciding to take the plunge. Here’s a quick guide on the subject, and some tips on how to use retail software to help make your decision easier.
How Groupon Works for Retailers
Groupon offers the following opportunity for retailers:
- They pitch a promotional deal for your business. These deals will vary, but they’re usually in the 50-90 percent-off range.
- If enough consumers don’t purchase the coupon, then you don’t have to pay Groupon anything for the free advertising and promotion.
- But, if enough consumers do decide to purchase a coupon, then Groupon will take about 30-60 percent of the promotion and send the rest back to the retailer in three installments over the span of 90 days.
So in a nutshell, the Groupon promotion will sell your inventory at about 75% of its value, and pay you for it over the span of a couple of months. Doesn’t sound like the best strategy, but Groupon says the idea of its service is to get your brand name out to a new audience, encourage customers to purchase more when they enter your store, and to gain new, repeat customers.
Unfortunately, a report on online social deal sites from Rice University says this doesn’t happen. You can check out the full report here, but the main findings are that most customers don’t purchase anything more than the coupon allows, and they don’t come back because they’re loyal to the coupon site, not your business.
How a Retailer Should Use Groupon
So as a retailer, should you avoid Groupon at all costs? If used correctly, a Groupon promotion can be effective. One such way is to use Groupon to get new customers into your store, but provide extra incentive for them to return. Examples of this include additional coupons for customers, or just letting them know about future events and promotions.
Another great way to use Groupon is to run a deal on inventory that you have a surplus on. The deal will allow you to eliminate your excess inventory at a rate you wouldn’t have been able to before.
Most importantly, though, is to analyze your business and decide what you can afford and handle before even speaking with anyone from the Groupon team. This can be done with the help of retail point of sale software. By using these systems, you can gain a better understanding of your business, and can approach the Groupon team with the exact deal you wish to promote. Within your point of sale system you can use the following applications to help you make your Groupon decision:
- Inventory management. Use this to find what amount of “perishable” inventory you need to sell.
- Retail accounting. Crunch your financials and decide what size of a deal your business can really afford. Do the math, and be firm when working out the Groupon deal on what you will allow. There are many inexpensive standalone systems such as QuickBooks or Peachtree for these very purposes.
- Retail CRM. Do you need something like Groupon to improve your Internet marketing? If have no way to measure this, it’s a very difficult question to answer. CRM software is a great way to analyze how your business’ marketing initiatives are paying off. You can use something like Salesforce.com to look at your marketing if you don’t have a system that offers this. Alternatively, you can use a system with deep CRM functionality, like Microsoft Dynamics RMS.
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