go-Digital Blog on Digital Marketing

When NOT to use Groupon (as an advertiser)

UPDATE: Groupon/Gap ended up selling over 440,000 “$50 for $25 Groupons” by the end of the day. That’s $22 million of merchandise that consumers bought for $11 million. From this net, Gap would split some portion to Groupon, which means Gap “took home” something south of $11 million (could be as little as $5.5 million if Groupon’s typical 50/50 split held true). So the bottom line is both Gap and Groupon got huge publicity from the promotion and they got sales — indeed “cash in hand” — but if these sales were breakeven or negative in profitability, would Gap have been better off NOT running the promo? Even if these sales got people into the stores that would not have normally gone to the stores, Gap just bought the traffic by paying off customers; will they ever come back and spend any more?

Groupon is great … and a great success story.  But there are certain times when an advertiser should NOT use Groupon — unless they are in the business of losing money. One such example below…   as of 4:15 pm on the day of the deal 10,648 Groupons purchased (NY stats) — which translates into $266k lost revenue (multiplied by the $25 they gave away free).

Then again, this is still way cheaper (less money lost) than the millions wasted on TV ads — so I’ll take my statement back IF the advertising manager at GAP took dollars out of TV budget to spend on this.

P.S.  no, the free publicity they are getting from this is NOT worth it because the more publicity they get, the more money they lose.

P.P.S.  no, “breakage” (people forgetting to use the groupon they paid for) is NOT a business model

P.P.S.  no, the “halo” effect (that people may end up buying more) is unpredictable and may be better for some products and brands and worse for others

http://mashable.com/2010/08/19/gap-groupon/

http://www.zdnet.com/blog/btl/groupons-11-million-gap-day-a-business-winner-or-loser/38259

http://inventorspot.com/articles/social_media_coupons_cautionary_tale_be_careful_what_you_wish#comment-30256

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