To Groupon or not to Groupon. That is the Question.

Groupon continues to grow and grow. The world's fastest growing company this week announced it will float on the stock market. Investors can now get a slice of the big Groupon coupon pie. Yum!

This toddling three year old is growing up fast. Yes, there are clearly teething troubles, but I can't see anything preventing it from growing into a spotty, arrogant adolescent in due course.

Groupon's "partners" (the companies who offer the great money saving deals)may be just a little bit more sceptical, however.

Here's the tension. Companies don't like discounts. Consumers do.

Discounts lower profit margins, quite possibly forever.  The P for Price is the last of the 4Ps that any self respecting marketer would ever want to touch. For companies who are struggling to get bums on seats, Groupon offers a clear method of filling those seats, but at little or no value to the business. In some cases, at a massive cost.

So why are companies bothering with Groupon?

Well, from a marketing perspective it does have some redeeming features:

1. A mighty big local database. The key here is local. No-one else, guaranteed, will have a database of local consumers quite this big, or quite this up to date. That's the quid pro quo for conusmers - keep your info up to date, and you'll get all the deals first hand. Local media can't even begin to hope to reach, directly, the same numbers that a Groupon database can do in a matter of seconds. Getting the latest local news direct to your inbox is no competitor for a deeply discounted facial or trip to the zoo.
2. It's free to use. There's no direct cost of marketing. So companies need no longer spend their money on something that doesn't guarantee a return. It's sort of a "no win, no fee" marketing tool.
3. Their customers are engaged. And this is the real key to its success. The vast majority of Groupon users, thanks in part to social media and mobile phone technology, check their offers daily. And then they buy. They buy things they weren't intending to buy because it's a great deal. And who can beat a great deal?

So do the nay-sayers have a point? They sure do.

Traditionally, spend on marketing sits in the region of 10-15% of total sales turnover. Groupon is essentially asking companies to part with 80% (60% discount + a 50/50 share for Groupon and the retailer) - it's a damn big ask.

But on balance, if your marketing only costs you something if you're successful and it is, by and large, the most effective form of direct marketing you can get, why wouldn't you give it a try and add it into the marketing mix? If you're in a business that relies on repeat custom, and customer service and you believe you can develop even 25% of your response into longer term customers you are onto a winner.

Don't get me wrong, a marketing strategy that relies on 100% Groupon is commercial suicide. Unless your gross profit margins are in excess of 500%.

If you don't believe you're systems are up to strong customer retention, then don't bother.

But then, that might be one of the reasons you are looking for bums on seats in the first place.