One of the hottest tactics in social media among small businesses is the social coupon. Groupon and Living Social are the largest sites nationally. The OnMilwaukee.com Deal of the Day and DealsByGolly.com are newer entrants on the Milwaukee scene.
Here's how it works. Your business offers a deep discount, usually at least 50 percent, to the consumer. The site typically takes 50 percent of the revenue that's left, leaving you with a net of 25 percent. Newer entrants to the category may structure deals differently.
In spite of the challenging economics, this can be a tempting way to get new customers in the door. If you can convert them to long-term customers, it can sometimes pay out in the long run. Having a conversion strategy in place is absolutely essential.
A study reported in Harvard Business Review found that Groupon-type promotions were profitable for two-thirds of businesses using them and unprofitable for one-third. Nonetheless, nearly half (42 percent) of the businesses said they would not run them again. They can stretch your resources too thin if not structured to your best advantage. As Brookfield business owner Jim Kasch of Café Manna said regarding his current Groupon promotion: "I didn't feel they were totally forthcoming in how we could structure the deal. At this point, we can't wait for it to be over."
What's more, over time, deep discounting can devalue your brand. For many business owners, like Joe Sorge of Milwaukee's AJ Bombers, it makes more sense to focus on creating a remarkable customer experience that helps you net new customers through word of mouth.
Social couponing might make sense for you if you have low variable costs, so you won't lose money on the discounted sales, if the deal can be structured in a way that you have extra capacity during the promotion and if your employees support the promotion and will have a good attitude about it. Harvard Business Review found employee support to be the biggest driver of success.
Proceed with caution, and with careful strategy.