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Medical Spas & Groupon Group Buys

Group Buying & Medical Spas

Social networks and social media (Facebook, Twitter, blogs, etc.) get a lot of attention as marketing vehicles in the cosmetic medical world, and with good reason – your potentail patient are already there and are spending more hours being social online than ever before. However, another major marketing movement may have a much larger impact on how medical spa marketing is changing... discounted group buying sites.

How Group Buying Sites Are Impacting Medical Spas & Physicians

A recent Forbes profile on Groupon reported that the group buying site’s sales have reached $500 million and that the company’s valuation is now $1.3 billion. Groupon will be the fastest company ever to reach $1 billion in sales, and they were profitable seven months after inception. In just three years, there are now 200 competitors to Groupon in the U.S. alone (over 500 internationally, says Forbes), and this number is growing — not to mention the likelihood that Facebook, Yelp, Foursquare, and niche publishing sites seem likely to get in on this model of selling. Clearly, group purchasing has resonated with the market... including medical spas, plastic surgeons and cosmetic physicians.

This model is simple: a massive discount with urgency and strong merchandising. In Groupon’s case, a 50%+ discount will definitely drive sales. (It’s important to realize, however, that they are unprofitable sales. According to the article, the retailer only gets half of their discounted deal, netting only up to 25% of the list price. No, the retailer doesn’t make money; however, they do get eyeballs on their company and product. The bet is this exposure will attract full price customers, offsetting the loss.)

A couple things will happen with medical spas that advertise on sites like Groupon. First, it's difficult to get off the “crack” of sales from these deals. Groupon reports 97% of their retailers want to be featured again. And with 200 group buying sites, and more coming, many retailers may just make the rounds of discount after discount. This is a recipe for losing money and commoditizing your entire business with treatments that are not turning a profit. Unless – and this is the big caveat – your medical spa sees sustained profitable sales from returning customers.

Of course this is the same methodology that many of our Select Partners use to aggregate the bying power of our individual physician members to drive down the cost across the entire network. Examples would be when Sciton offered $15,000 of of a new BBLs IPL platform and the $349 Group Buy Botox offer.

Which brings us to the second and more salient point: Groupon reports only 22% of customers who buy a deal return to buy full price. (There are no statistics about cosmetic medicine deals on Groupon). If you're dealing with treatments that come with high fixed costs that can cause all sorts of problems, especially if you have any form of 'commission' payments with your staff.

Discounted medspa customers only return if:

  1. They had a great experience with the product or service.
  2. If, at full price, the experience is still a great value.
  3. If they're not hopping from discount to discount, which many of them are.

What percentage of medical spas will clear that high bar? Medical spas and physicians must become amazing to attract profitable customers back, or they may discount themselves out of business with unprofitable treatments that are filling their treatment rooms, and that’s where Groupon shines a light on the need for a superior customer experience.

Most medical spas try to get around the 'loss leader' aspects by offering treatments with no consumables (Botox, Restylane, Juvederm, Thermage etc.) and offering purely cosmetic treatments like facials or high margin treatments like laser hair removal.

If you've had an experience with Groupon or other group buy site's, please leave a comment and let us know about your experience and what you learned.

Reader Comments (6)

Equilibrium does not participate with Groupon type offers and here is why: did anyone really go to school, train and purchase medical aesthetics equipment to get receive 50% of 50% off? Quick, do the math. Here's a breakdown. Let's say you discount a regularly priced $100 service to a $50 groupon deal. Groupon will "give" you 50% of what they collect, which in this case is $25 - BUT they propose to give that to you in three monthly installments. That's right - you get a staggering $8.33 per month for all the "exposure". I was floored by the concept. We track every call, and have run in "coupon type" magazines before. I have tracked all coupon shoppers and 82% of ours never returned to purchase anything much less a full service product. Also noted: if any medspa tracks their targeted demographic...they will discover that a large portion of their clients will come from within a 5-10 miles radius of their physical location. I asked Groupon to share with me how many of their email blast list were within my targeted demographic - they couldn't (or wouldn't do that). Hmmm. IF you feel compelled to ever write a groupon deal, here's my advice: offer something no one would really want, ie sabotage the offer, therefore it won't go through - but you'll still get all the "exposure". Instead of receiving 25% of what you would normally charge - how about having a 50% off special for your top referrers? Bet it gets you more exposure from people who are most like your best clients.

11.18 | Unregistered CommenterLori Hoyt

Thanks Lori!

11.24 | Unregistered CommenterLADOC

We do Groupons, and all of Groupons competitors. We run them every quarter. We have been the most successful at running Micro/chem peel deals and some select hair removal deals.

I won't pay Groupon's 50%- it can be and has been negotiated.

We offer a special % off deal for other services as a special "courtesy" for the Groupon patients at the point of redemption, good only for that day.

It has driven our business up considerably.

I look at it as a marketing tool only, to get a huge # of interested people's info and to market to them as it costs us less to "keep" existing patients than to attain new ones.

If used correctly, it can help increase the bottomline. But don't look for Groupon to help you figure it out- the sales reps are basically telemarketers at this point and really don't know their own business. Try to get some help from their marketing dept, they can break down their stats for you. Or wing it the first time and determine your own stats.

Here's just one of the many stories I've read about how Groupon can actually hurt your medical spa. There's special emphasis around the tipping / commission.

The Groupon Story:

For months I’ve been thinking about whether or not to write a blog post about Groupon, and sharing the kind of experience it has been for the business. I’ve been weighing the possible repercussions of such a candid post as well, but after today, and having to decline a longtime customer’s Groupon for being past the expiration date, she asked that I share with everyone the reality of Groupon.

Today one of our most loyal customers, Lucinda, came in and asked if she could use her Groupon that had expired the day before. I felt terrible, but I had to say no. I knew she was upset, and I wanted to explain, but there was a line, and it would take longer than the few seconds we had together there to share why I couldn’t. She came up to me later when there wasn’t a line to tell me that she was really disappointed, that she had been a longtime supporter of Posies through the Mamananda Group, and that this experience made her never want to come back. I knew she felt my declining was personal. So I explained to Lucinda, and now to all of you, how Groupon works for the businesses, and why it has been the single worst decision I have ever made as a business owner thus far…

I heard about Groupon in January of this year from a friend, and after doing my research, I thought the idea was pretty clever. I, the business owner, would offer a discount to the consumers utilizing Groupon’s social network, and we would get noticed by many who may never have seen us otherwise. A great marketing opportunity and way to increase future foot traffic! I assumed Groupon would take a percentage, but that it wouldn’t be that huge… maybe 5-10%? I spoke with John, a Groupon rep, and we started formulating the idea. He didn’t have to sell me on the concept, I understood and thought it was genius. Then we talked pricing. We were going to offer a $6 for $13 (pay $6 and get $13 worth of product) because John told me people really respond to deals that are over 50% discount. It wasn’t starting off as that great of a deal for us, but we kept talking. Then we talked the percentage split. John told me that when the consumer pays less than $10, Groupon usually takes 100% of the money. What?! He reassured me that most customer buy more than the $13, and that we would never have to advertise again after taking advantage of their network. In my mind I thought “false. You can never stop advertising as a business,” but outloud I said, “Ok, let me think about it.”

I hung up and thought it over. I called him back and said we would have to get at least 50% to cover our costs of product… to this day I don’t know why I thought even 50% would be a good deal for us. Maybe because I thought since we were covering our food costs. What I didn’t think clearly enough about was that that margin we mark up is what covers all of our other costs… like staff, rent, utilities, etc. Our overhead is roughly $25,000/month, and this decision was about to make it so that we didn’t cover any of those other costs.

Against my husband’s advice, I decided to do it knowing how many other businesses I admired had utilized Groupon. We were featured on March 9th and sold nearly 1,000 Groupons. When I talked to Lucinda today, she asked if there was a cap on how many were sold to help protect the business from too much loss, and the simple answer is, no. When you sign up for Groupon, you are agreeing to sell as many as get sold… and why would Groupon want it any other way? They get half of the earnings.

We were bombarded the first weekend after our feature because our feature had come out a month late, and unfortunately coincided with the Kenton Library’s grand opening. Over the six months that the Groupon is valid, we met many, many wonderful new customers, and were so happy to have them join the Posies family. At the same time we met many, many terrible Groupon customers… customers that didn’t follow the Groupon rules and used multiple Groupons for single transactions, and argued with you about it with disgusted looks on their faces, or who tipped based on what they owed (10% of $0 is zero dollars, so tossing in a dime was them being generous). Or how about the lady that came in the day of Groupon (though you’re not technically allowed to use them until the day after) and asked for the Groupon discount without an actual Groupon in hand because she preferred to give us all $6 rather than half of it to Groupon. While the idea is noble, this causes mass confusion among the staff and makes it seem that without commitment, anyone should be able to get anything off of our menu for 50% off.

After three months of Groupons coming through the door, I started to see the results really hurting us financially. There came a time when we literally could not make payroll because at that point in time we had lost nearly $8,000 with our Groupon campaign. We literally had to take $8,000 out of our personal savings to cover payroll and rent that month. It was sickening, especially after our sales had been rising. Sure, maybe thinking of it as just marketing may seem justified, but anyone that knows me well knows that I would never pay more than $100 for advertising, much less $8,000, because I don’t believe that regular advertising had much return on investment at all. So the experience jaded me, and the interactions with the few bad Groupon customers we had jaded our staff. After all of this, I find myself not even willing to buy Groupons because I know how it could hurt a business (side note: service industry businesses do quite well with features like this because it is just the cost of time – you are not paying for a product for resale. Resale, in my opinion, get hit the hardest).

In short, to dear Lucinda and anyone else that comes in with a Groupon in hand, please know that our respectful decline of your coupon is not personal. It’s because we cannot afford to lose any more money on this terrible decision I made, and the only saving grace we had was an expiration date.

11.24 | Unregistered CommenterDermgal

You are all on the right track.

We were going to do a Groupon ad, but we wanted a higher price point than $99, which seems to be the established limit for our market. We simply did not want to offer a laser hair removal offer that would not give the client a full 6 sessions.
We had heard too often of clients buying a three session deal and then be hit with a very high price tag for the remaining sessions needed to complete the service. This just makes for an unhappy client and bad publicity for the clinic.

We negotiated at $200 price point for 6 laser sessions for facial hair. Our rep sent the contract, which we signed and returned. Our rep told us that there would be no other laser hair groupon ads prior to ours in October, 2010. The first week of October, a laser hair removal ad from a competitor was on-line. We called our rep and she told us that our 5 page contract was just a "proposal". It had been rejected by the local Groupon staff as too high a price point. We were never informed of this approval process OR of our rejection. It turned out to be the best thing that could happen.

We are not going to do any of these types of offers. Laser aesthetics is a service that requires a client-technician relationship. Groupon is not a vehicle for us for this reason. Their unprofessional practices just reinforced our decision.

11.29 | Unregistered CommenterElaine

Yes, I have had bad those type of bad experiences with Groupon too. The bigger they get the worse they are. That's why I like working with their competitors better.

I have done LHR underarm only- 3 sessions for 99. I had Groupon put in the offer that it is recommended that they buy 2 Groupons for the full 6 treatments. It's a total of $198 for the patient and the medspa gets 1/2 or $99 for 6 sessions that take about 10 minutes each. The trick is in the up selling to get a higher rate of return.

The last Groupon we did produced $90K in gross revenue and ran the weekend. That's $45K for us. There is no other way humanly possible for my medspa to gross 45K in 2 days in this economy that I have figured out.

Plus the buzz that surrounded the deal made our phones ring off the hook- I have to put on extra staff just for the phones. We are usually returning voice mails until 9:00. It's a grueling but lucrative way to get business in the door.

Oftentimes people want different packages than what you run the Groupon for, like Brazilian or full back what have you, and we do phone consults that are basically all about the deal. We can do anywhere between 10K- 14K on the phone consults alone. That's straight up revenue for us as Groupon's not involved.

Interestingly, I was told that 35% (I think) of all Groupons sold are not ever redeemed. Which I look at as free money.

But the Groupon/Groupon competitors shouldn't really be used as a sales technique but treated as a marketing tool to get bodies on the bed. Then the relationship building has to occur otherwise it's a waste of time and energy. Your staff has to have their game face on for every patient, every time.

It's a different way to approach this business, with having huge volume but servicing the patient like it's a small family practice where they are your one and only primary concern. It can become quite a balancing act. But it has been a way for us to grow and stay financially sound in an economy that frankly isn't improving the way the politicians are saying it is.

p.s if anyone out there is going to work with Groupon or one of their competitors, once you sign the contract get a commitment from them when you can expect your copy back. If you don't get it back your deal is not going to run. If you get it back- it is a legally binding contract that they must honor.

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