Discounting is the new marketing trend.
Groupon is reported to be the fastest growing company ever (ever) with 5 million users in the UK and even more worldwide. Other copy cat business models (Itison.com, KGB Deals, LivingSocial) have quickly followed suit in what is ultimately the next land grabbing gold rush of the ecommerce landscape.
But business owners beware. Discounting is both a marketing science and an art. One which, if not thoroughly thought through, could backfire with catastrophic circumstances.
Over the past few weeks I've had many philosophical discussions with clients about Groupon and its ilk. Many of these discussions are tinged with fear and suspicion. But discounting is a viable, and arguably clever, marketing strategy. Tesco's are the king of the discounts and it hasn't done their business any harm over the last few years.
So here's the deal on the deal. Here's how to make sure it works for you.
Assess Capacity and Demand:
If you are in a service business, your marketing has to be ALL about creating demand and maximising capacity. Failure to maximise capacity and you lose money.
For instance if you've only sold enough hairdressing appointments for half a day, and the other half a day passes, you've just lost half a day of revenue - never to be gained again.
If you can fill that half a day with paying customers, albeit at a smaller value, you are now making more money than you would have been than if you'd not sold anything at full price.
Do NOT discount if you do NOT have capacity in your business. This is where others have come a cropper. Itison.com's Dundee launch sold 5000 Dominos pizzas in one day..... needless to say, thanks to such a great offer, Itison.com had plenty of dough but the pizza shops didn't have quite enough to satsify all those hungry pizza loving bargain hunters.
Assess Profitability and Pricing:
This is the key to success. Discounting is NOT about giving it away at a loss. Roughly speaking, most discounters are looking for the business to give the service away at around an 80% discount on advertised price. So, unless your "mark up" is in the region of 400% your discounting adventure will be costing you money.
But there is a way to do it, at a profit:
- Don't make single service offers - combine services to maximise the use of operational time and increase the value of the deal
- Only put on offers where you have a high likelihood of making a cross or upsell - for instance a service that's likely to result in a product sale, or will need multiple visits (at full price)
Assess Reach and Impact:
There's choice in the marketplace so you don't just have the option of one when it comes to selecting a discounting partner.
If you are looking at discounting as a media channel, first consider its reach. Response rates in the industry are typically in the region of between 0.3% - 2% at most.
In simple terms, if the database of the discounting firm sits at 100,000 total "reach" you can expect between 300 - 2000 people to take them up on the offer. In most cases it's at the lower end of the scale. In exceptional circumstances it may be much higher. But in those cases the deal is a steal.
So if you're not sure you can support the capacity uptake of 500 new customers, consider using one of the smaller discounters. You might only get 50 voucher sales, and only reach 10,000 people, but it might be a better solution for a very small business.
Carefully Consider Frequency:
Tesco discounts all the time. Their business model supports this activity. They either negotiate with their suppliers to get the products at a discount, or they push prices down across the board to ensure they make their profits even though they are offering up bargains galore to customers in store.
Your business is, most likely, not following this kind of discount model. So tread carefully when it comes to frequency of offer. We would avoid committing to more than three deals in any calendar year and the timing needs to be sporadic, rather than predictable. The last thing you want to do is train your customer base that, if they wait a couple of weeks, they'll get it at a 60% discount. There madness lies.
The offer should always be seen as a "treat" or an "exclusive" in order for it to be successful for both you and the discounting site.
Assess Audience Response:
It is very likely that your existing customers will be on the database of the discounting company. So having a strategy that rewards existing customers is a must. Whether it's a loyalty promotion or something simple that says thank you, never forget: these are the guys that, ultimately, keep you in business.
Over the last two months we've all been unable to avoid Olympic Tickets Fever.
Millions of us applied for tickets, stashed the extra cash in our banks and waited (im)patiently for the funds to magically disappear confirming that we'd got our hands on one of Willy Wonka's Golden Tickets.
And we waited. And waited.
Until one day we were told: THIS IS IT!
The collective British sigh of disappointment was audible. Bank accounts were checked with increased desparation and frequency. The money was still there! Why haven't they taken it yet? Realisation dawned. We'd lucked out. There would be no visit to the chocolate factory.
It's a tough job to manage the expectations of millions of people but the fall out from the disappointment has been well deserved. The Olympics PR team are guilty of setting high expectations, failing to manage them and rubbing salt in the wounds thereafter. All of which could have been easily avoided.
And they had every chance to get it right. The National Lottery has been doing it well for years.
The odds of winning the National Lottery are pure chance. So, it would seem, was the lottery for the Olympic Tickets. The Olympians failed to communicate, however, that we were all taking part in a nice big gamble. The odds, as we've subsequently found out, were much less than a 50/50 chance of being successful with 55% of applicants walking away with nothing at all.
The National Lottery manages expectations that the odds of winning the big one are around 14 million to one. So, every week, when we don't win, we simply shrug our shoulders and say "It was a long shot anyway, back to work on Monday!"
And they can't say they weren't warned. In an article published on 9th May, Matthew Beard from the London Evening Standard argued that Olympic Chiefs should be telling us just how big a gamble we've taken. He was not the only one to pose this argument. The media was awash with shock and awe stories of how people had maxed out their credit cards and faced financial ruin when (if) they were lucky enough to get all they purchased. The rest of us smugly looked on thinking: idiots.
But it turns out they were the sassy ones. The seasoned gamblers who got it at once. Spread betting was the only answer. The odds of winning were so exceptionally low it was the sheer number of bets that counted. That was the only way you could increase your odds.
Official advice ran contrary to this, however, and this is where the corporate line failed to deliver. The lottery system would be "fair", only buy what you can afford, everyone has the same chance of getting tickets. So the vast majority of Britain did what they were told and totally lucked out.
An inevitable backlash ensued.
"UNFAIR!" cried Britain.
"NOT SO!" cried the heartless Coe. Completely missing the point.
Coe continues to defend the "system" but fails to understand it's not the system that was the failure, it was their communication strategy that was the ultimate patsy.
The key messages failed to come across. The punters were clueless to the kind of gamble they were taking. And now hundreds of thousands of people, finally understanding the odds, are to be given a second chance gamble. But will they be flocking to the Ticketmaster Casino in their droves?
Fool me once: Shame on You. Fool me twice: Shame on Me.
Lord Coe can rest easy. The Olympic "goals" will have been met: The event is on target to sell out. It's just that Britain won't be quite as engaged in his Olympic dream as they once were.
Shame. Because that's really what the whole point of the Olymics: Dreams.
Hate to say it, but I told you so. Chezza's Back, Back in the USA. Or so it would seem.
Following a PR circus lasting some 11 days, Cheryl's been in, out and shaken it all about. She's done the hokey cokey, and turned it all around. And that's what's it's all about. Folks.
Breaking news suggests that Cheryl will be rejoining X Factor USA as a judge.
One wonders if she ever really left.
On the 26th May I predicted this would be the case in my blog "PR Tactics or News".
On 4th June I suggested that the circus might be coming to end soon in my blog "The PR Circus Continues" following news that Chezza had applied for a permanent US Visa.
Today, 5th June, we are reminded who's really in charge of the UK's free press. The Daily Mail, and quite a number of other tabloid news sites, are carrying the story that Cheryl is set to return to the USA X Factor.
Good job she took advantage of the last 10 days of unemployment to apply for that permanent US Visa then.
Way aye.
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:
- 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.
- 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.
- 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.
Like the rest of the world, I've been following the Cheryl Cole/US X Factor media circus with a degree of feigned interest and curiosity for the last couple of weeks.
On 25th May, I wrote (predicted) that Chezza would be back in the job in no time, having generated significant press coverage for the show on both sides of the Atlantic.
So, nine days later, it comes as no surprise to me that the twist in the proverbial tale is that Chezza is getting to keep her £1.2million fee for four days work, as long as she doesn't blab about how badly she was treated.
Note to bosses: that cat's already out of the bag.
Intriguingly Cheryl has been uncharacteristically quiet for a woman scorned. Very uncharacteristically quiet.
As a byline in another story, she has taken time out from her stretch of unemployment to apply for a permanent US Visa.
Wonder what she'll need that for? Will my prediction turn out to be correct?
Simon's not daft. Neither is his publicist Max Clifford. They both know these shows live or die on the amount of controversy they create. And so the PR circus continues, but I'm fairly certain it's Messrs Clifford and Cowell who are pulling the strings on this one.
I await the headline: Welcome Back Chezza
Those of you who know me personally will know I love a good conspiracy theory. And so it has become almost a game for me to discern which of the daily "news" stories are actually news, or are just clever (and sometimes not so clever) PR stunts designed to hook in members of the public and sway opinion in a certain direction.
No-one is better at the latter than Mr TV himself: Simon Cowell.
So it is with amusement that I read today about Cheryl Cole's alleged dismissal (and I say it's alleged because none of those highly paid publicists on either side of the Atlantic are spilling the beans) from Cowell's stateside X Factor project because of her "accent".
Intriguing on a number of levels.
There's nothing better than generating outrage (read: press coverage) amongst viewers for "unfair" treatment, real or otherwise.
Queue: international PR coverage, viewers rallying around Cheryl and (mark my word) her impending return to the show a few weeks down the line because Simon will (probably) feel things are not working with poor Nicola Scherzinger (who luckily has the presenting job to fall back on).
Cynical? Yes.
True. Most probably.
Ryanair royally messed up yesterday. In PR terms.
The self proclaimed hero of the people put profits first. And the people didn't like it one little bit.
With the Ash cloud returning to the shores of the British Isles, bullish Ryanair shored up its shoulders and announced it would fly. It was safe to fly. In fact, there was no cloud.
But with all other airlines cancelling their flights over safety concerns, the people didn't believe it's claims that all was safe in the upper atmosphere.
You see, while we might all like to moan about how inconvenient it is not to be able to get from A to B at our allotted time, and how it has temporarily ruined our lives/days/holidays, we would still much rather be alive tomorrow.
Ryanair forgot this.
It takes years to build a reputation and seconds to lose it.
Ryanair may have just lost theirs by making a decision that, clearly, put their profits before their passengers' safety. They may have believed their own hype. But the public know better and have voted with their feet - or not - you won't catch us getting on that plane......
So in PR terms, now what?
Will anyone ever get on a Ryanair flight again without giving safety a second or third thought?
What is clear is that Ryanair's PR department will be busy for days to come, and their marketing department now face an uphill battle to convince consumers that cheap flights are not synonymous with corner cutting on the safety side of things.
A tough one.
