Groupon is a “daily coupon” website. It’s basically an email list that charges advertisers to send out their “coupons” called Groupons.
Many small businesses I’d likely never hear about otherwise send me their coupons this way. I receive them mainly to see what’s up… because the city I receive them from is 2 hours away, I don’t expect to take advantage of them.
I've noticed that for the most part, these are not large mainstream businesses. They are small businesses – spas, bakeries, etc. that likely don’t have large advertising budgets and think that Groupon is a great way to drive traffic without spending marketing dollars.
At Groupon, they have an email list of over ten million people and if you contact Groupon to be included on their “deal-of-the-day”, you can get the word out about your medical spa to thousands of people you would otherwise never be able to reach.
There are usually huge discounts involved (50% or more) to incentivize buyers and the general idea is that by offering a big discount on your products or services, people will try out your offerings and keep coming back for more. On the surface, it sounds like a great way to market your business and I was really excited about the idea until I thought about it some more and did some analysis. While Groupon might work for a small subset of local businesses, here’s why I don’t think Groupon is a good fit for the majority of medical spas out there.
Using Groupon will cost your medical spa an arm and a Leg... and another arm.
You might have read some Groupon horror stories already, but the reality is that Groupon is extremely expensive for a business. If you look at their faq, they give off the impression that running a Groupon campaign is free. They collect the money online from prospective customers, send you a check and mail out the coupons automatically.
What is not explicitly spelled out is that they take 50% of your revenue as a fee for using their service. So given that most Groupon campaigns offer the end customer around 50% off, let’s run some numbers here. Say your product retails for $100. By giving a 50% discount to customers, you will only make $50. After Groupon’s 50% cut, you only get $25 for something you normally would charge $100 for. Depending on what your markup is, it better be more than 400% otherwise you could potentially lose money on every transaction!
What’s attractive about Groupon is that they run the campaign for you and simply send you a check. It’s not until later when you have to fulfill orders with these ridiculous discounts do you realize how much money you are potentially losing out on. Most medical spas that are using Groupon—and there are many of them—tend to try to limit their 'deals' to services like laser hair removal and IPL treatments rather than Botox or cosmetic surgery to limit their exposure to services with high fixed costs. But whatever you're offering, it's questionable that taking a huge loss on hundreds of services will prove beneficial to your clinic's bottom line in the long term.
While I'm not absolutley against using Groupon in any way, there are some issus that you want to be aware of around how using Groupon will actually hurt your medical spa or cosmetic clinic.
Groupons don’t make your medical spa memorable.
I’ve got some experience using Groupon a few times as a consumer and you know what? Every time I've purchased through Groupon, what stands out in my mind after my purchase was not the business itself but how great of a deal I got on the product or service. In fact, I remember talking to friends about what a killer deal I got through Groupon. Not once did I mention any details about the business that I was actually purchasing from. I was too excited about the bargain itself.
Using a Groupon takes the spotlight away from your business. After all, it was Groupon that provided your customer with the coupon and the unbeatable deal. It was Groupon that made your customers’ purchase exciting and fun. As a result, customers are far more likely to brag about Groupon and not your clinic.
Groupon deteriorates the perceived value of your medical spa.
Whenever a store offers an incredible deal or discount, there is this perception that the markup was already ridiculously high. If company X can offer a 50% discount and still make a good profit, then they must be jacking up their prices. Once a customer receives a large discount, it trains them to wait for later coupons and deteriorates the value of your products and services. This is especially true with medical spas since Groupon is saturated with them.
There is this dining card I sign up for almost every year called “The Passport” card which entitles the card holder to a free entree at select restaurants when another entree is purchased. The card lasts exactly one year until it expires and you have to pay to reactivate it. One year, we decided to let the card expire and you know what? We refused to dine at “Passport” sponsored restaurants during this period because it didn’t seem worth it without the card. We were so used to getting a free entree that we didn’t want to pay full price again.
While this principle applies to coupons in general, the price erosion caused by a Groupon are infinitely worse because the discounts are so steep.
You can bet that the majority of the new clients you attract through Groupon will be visiting your competition next month. You've just invited all of these new users to price shop you.
Groupon hurts your loyal clients.
Don’t you hate it when you are a loyal customer of a product or service only to find out that the company started issuing huge discounts for new customers only? This happens all the time with cell phone carriers and it really pisses me off. Using Groupon has a similar effect on your regulars and your loyal customer base.
By taking a loss using Groupon to obtain new clients and patients, you are essentially forcing your loyal clients to make up for your losses. And this is counter-intuitive to the way you should be doing business. Your regulars should be the one rewarded with discounts and perks.
There are 2 possible outcomes when a regular customer sees one of your Groupons and both are bad. In one case, your loyal customer could get pissed off and consider shopping with a competitor. But more likely, your regular customer could buy a S@$% load of Groupons and only pay a fraction of the price for what they normally would spend at your store. In effect, you would be losing out on future business with this customer because you would be taking a loss or breaking even on what could have been a 4X profit!
I've had experience with this first hand through another service. Some of our most loyal—and profitable—clients found out about some discounts and switched to them. All we could do was smile since there was no way that we wanted to make waves with our existing clients. We just quietly folded our program and smartened up.
Outside of the issues I’ve already covered, the main problem with Groupon is that the longer term effects are extremely hard to measure. It might be possible to measure repeat business somewhat but it’s almost impossible to measure the word of mouth effect.
To sum it up, I think of Groupon as a shortcut with major consequences. The attraction is that you’ll get a lot of customers upfront, but once everything is said and done, you’ve lost a lot of money and the long term benefits are questionable.
My general philosophy in business is to focus on the long term. Instead of trying to get a one time flood of customers, why not put forth your efforts on making your business stand out? Be the store that everyone wants to shop at because you are awesome and not because of a coupon. Be the medical spa that offers the best customer service. Be the clinic that gives customers the best experience. Giving a one time discount isn’t going to win over any followers and you risk damaging your medical spas real business.