“Is advertising through Groupon worth the money?”
One of the most popular questions for a restaurant owner to ask themselves nowadays.
I would like to share a blog post with you from a restaurant who used Groupon. I warn any restaurants I can from using Groupon, or coupons in general. There is no more expensive way than Groupon to advertise for a restaurant because you lose money on every deal you sell. No restaurant should ever make an offer that loses them money. That is counter-productive.
Please read this one restaurant’s experience using Groupon. There are over 125 comments to their blog post that you should also read.
Here is the blog post from Posie’s Cafe Blog:
There are many other restaurant owner personal accounts of their troubles with Groupon. If you have one of your own or know of someone else’s, please share it here.
O’Dell Restaurant Consulting
While I agree with the anti-Groupon sentiment in principle. There are exceptions. I worked with a restaurant in a small town that was a destination for many people within a 50-60 mile radius. The majority of my customers came from outside the immediate area. The cost of advertising to reach my potential customer base at a time when they were ready to travel to my town would have been extremely high. Groupon offered me a way to draw customers in. Yes, there was a cost involved, but in the long run that cost was less than what I would have spent on more traditional marketing.
How is that restaurant doing now Jim? Not that I’m doubting that it has worked for some restaurants, I just want to know if it resulted in a permanent, measurable increase in business. There are the occasional “exceptions” to any rule of course, I just don’t like to wage anyone’s money betting they can be an exception. Also, how did they keep the cost of offering Groupons below the cost of conventional advertising? By my math, Groupon is about as expensive of marketing as I’ve seen. The costs are usually just buried into the restaurants other operating costs so the owner doesn’t see them right in front of them. By the way, I like your blog.
Groupon may be as expensive as traditional advertising, but its immediate results are far more measureable. Whether a business can capitalize long-term on the sudden onslaught of new customers depends more on the product and/or service quality than anything else. Since well over 80% of educated, affluent women in the US use coupons regularly, to say they’re all non-loyal bargain hunters is prejudicial.
“Prejudicial”? Okay. That’s fair. Ask a restaurant owner or 1000 about coupon clippers. They tip less. They demand more. They don’t return without a coupon. Some businesses have found a way to fake value perception by marketing almost exclusively with coupons. The businesses that do this successfully price the discounts into their menu so anyone not using a coupon would have to pay an unreasonable price for their product. Think pizza. The coupon is really offering a price that should have been the regular price to begin with. Even pizza restaurants today have gotten huge return on reducing printing and mailing costs by lowering their everyday prices instead of offering coupons.
Offering a coupon to get first time customers in the door can act as a loss leader. Look at the life time value of the customer and it makes sense (in some instances) to offer a coupon. You can always stop them once your flow of business reaches a certain level.
In my experience, it’s never as easy as just “stopping” them. If you build your business on coupons, you must sustain your business on coupons. Stopping the coupons stops the coupon clippers from coming in. Pizza Hut is a great recent example. They attempted to save millions in print costs recently by pushing discounted every day prices instead attracting people via coupons. The problem is, the people who come to their restaurant ARE coupon clippers. If they don’t offer the coupons, those people quit coming in and sales as a whole suffer. That said, most pizza chains know how to price coupon discounts into their pricing structure so they are not using coupons as a “loss leader”. They are using them to give the illusion of extra value by overpricing their menu to make the coupons look like a better deal. This strategy has obviously worked for them for a long time, but most restaurant owners are not aware of how the strategy works so they simply “discount” and devalue their product. Their loss leader turns into just a plain ‘ol loss.
A lot of good points here. I have a friend who is a server in a local restaurant and she didn’t like Groupon because of the fact that the customers tended to tip way less than the average (they tip on the lowered amount after the discount). I guess it depends how desperate you are for business!
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