A Scenic Tour of the Online World

Groupon – Good or Evil?

Tuesday, March 22nd, 2011

There’s been a lot written about Groupon lately, and not just by folks jealous that so simple a concept has big-name firms trying to throw big-time money at the founders and early investors.

Some of that ink has focused on the very interesting idea that Groupon is bad for retailers. That’s not universally true, but it’s hard to argue against for lots of businesses.

In the short-term, you potentially give up revenue in favor of volume with no guarantee that the newbies will return. For space-limited offerings there’s the very real possibility that your new (low revenue) customers will crowd out some of your established, higher revenue clients. Obviously, rewarding your worst customers at the expense of your best is a bad strategy.

Worse, in the long-term, you’re training your clients to wait for the next good deal.

Seems unfair to lay blame for that on Groupon, though. That behavior has been around for years, before the inter-tubes even. Sierra Trading Post is one of my favorite online shops. I’ve bought gear there for biking, fishing, snowshoeing, kayaking … I’ve even bought winter boots for the kids and beds for the dog.

But I never buy anything until I get an email with a  good discount offer. They email a few times a week and that’s trained me to wait.

More generally, I never buy anything online without doing a search for “[thing I’m going to buy/business I’m buying from] coupon code.”

The interesting thing about me and Sierra Trading is that I’m a repeat customer but I’m not sure that I’m a profitable customer for them.

What’s an online retailer to do? Depending on your business, I’m not sure you can completely resist the discounting craze. But you want to do so in a way that benefits your bottom line in the long run, and benefits loyal customers rather than price-sensitive folks who will move on as soon as you return to regular pricing. So, instead of discounting a current purchase, provide a coupon for the next purchase based on the amount someone spends this month. Or create a frequent buyer program to reward loyalty. (Just don’t do it like the airlines and make it impossible to redeem your rewards …)

I’m interested to hear how you’re handling coupons and discounting in your business, and I’d love to hear how you use coupons and discounts – online or off – as a consumer.

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