Beware 'Groupon groupies' taking off with your profits
Wednesday, January 11, 2012
Little Sally playing in the waves, a baby's first Christmas and Auntie Sheila getting married (again): all captured for prosperity in the glossy pages and perfect-bound gloss-finish hardcover of a photobook. And what's the price of preserving such cherished memories? A quick visit to the Groupon website, an hour or so of photo selection and online photobook creation and, crucially, just 6 of the customer's hard-earned cash.
With prices like this for products worth three or four times more, it’s no surprise that customers are much more likely to buy a photobook, photo calendar, canvas print or other personalised printed product if it is subject to a discount. We all know as consumers how thrilling a bargain is, but what about the increasing number of printers branching out into this business-to-consumer market? Can such slash-and-burn discounts really work to a printer’s advantage, and how picky should they be about which discount vehicle they use and how they use it?
Discounts have, of course, long been a regular fixture in the marketer’s toolbox, allowing companies to increase sales during quiet times and to more generally heighten awareness of a brand or product. However, the past few years of economic turmoil have seen massive growth in the use of discounting, as companies look to capitalise on the trend of savvier consumers looking to spend their depleted budgets more wisely. Some argue that discounting is currently so ubiquitous that not offering the consumer a deal can leave you isolated and in trouble.
"If you don’t play the discount game, you’re on your own in the playground while all the others are playing it," says Duncan Midwood, managing director at photobook printer CEWE. He explains that a company which does not offer discounts – particularly when it is selling in a highly competitive online space – could run the risk of being overlooked.
But playing the discount game is a new sport for a lot of printers, who, particularly where the UK’s burgeoning photobook market is concerned, have only just begun selling direct to consumers as a lucrative sideline to their regular commercial business. The danger is that these printers, used to the more stable and predictable pursuit of selling and discounting business-to-business, may plunge into a discount scheme on the slightly panicked basis that everyone else is offering one – without fully considering the implications.
The most important thing to bear in mind when this temptation rears its head, says Rob Hill, digital marketing expert and managing director of digital marketing consultancy HMA, is that like any other marketing activity, discounts should always be offered for a specific purpose.
"Any discount scheme has got to stem from an understanding of a company’s business and the customers they’re selling to," says Hill. "Companies have to know exactly what it is that they’re trying to achieve with a discount."
The most common reason for discounting is to get more customers through the door, rather than to drive up business from existing customers. To facilitate this aim, many see discounting heavily as the best course of action. There are now plenty of vehicles by which to offer these discounts. Groupon is the largest, but VoucherCodes and VoucherCloud, along with many others, are also popular choices for consumers hunting bargains.
"If you’re looking to get stacks of new customers through the door, then a nice, strong generic code like 20% off, or at least 15% off, will work," says Helen Evans, marketing and communications manager at discount website VoucherCodes.
There are, of course, dangers to this method. Any printer offering such high discounts must be prepared for the fact that the end-result may well be lots of new customers, but no guarantee that those customers will buy another product in the future. At least in the short term, the printer is going to have to cope with running the presses at lower margins, if indeed they are managing to make a margin at all.
Whether compromising profits or even making a loss on hundreds or thousands of products is worthwhile – or even feasible –for a business will depend largely on the specific product being sold, according to those active in this area.
"We’ve recognised that canvas printers do have some high margins to play with," says Groupon head of partner management Richard Jones. He explains that canvas prints, like photobooks, are the sort of item that customers will often buy more of if pleased with the first purchase. So making a short-term loss can, if the business has the back-up capital to do this, lead to greater profit in the future with repeat business. The huge discounts here, at least, can be a success.
This is not necessarily the case with personalised calendars, according to Calendar Printers managing director and owner Chris Goslar, who specialises in this product. He warns that while large discounts on calendars will certainly result in more customers coming to the company, the likelihood of them returning with more business is lower than with other personalised products.
"This type of product has too long a cycle to discount at a loss in the hope that customers will come back next year. I wouldn’t be making my money back for a long time – and, anyway, there’s a good chance that the customer will have forgotten about us by then," he says.
For a personalised calendar printer, explains Goslar, a more prudent use of discounts is to increase sales at a reduced (but still healthy) profit during low-demand times of the year, such as at 5%-10% discounts during the quieter period from February to July.
For this reason, he says, a company like Groupon would never be a suitable platform for promoting the Calendar Printers’ discount schemes. Aside from the fact that 10% discounts would be lost among much more aggressive bargains, he says it is unlikely that Groupon would agree to feature such a low percentage on the site in the first place.
"Groupon encourage very large discounts," says CEWE’s Midwood, who has used the site to promote discounts on the company’s photobooks. "It generally has a big, long list of people wanting to do discounts, so they tend to be much more demanding of what discount is featured."
That said, for those happy to take a big hit on the sales price to draw in hoards of bargain-hungry shoppers, Groupon is the perfect vehicle, says Midwood. "The beauty of Groupon is if you’re a small player in the field, you can put in a generous offer and generate huge awareness," he says. "There aren’t many organisations out there that can email 6m people and get a very high opening rate on that. So it’s a really good awareness tool, and cheaper than going on television. It’s essentially reasonably priced advertising."
Midwood warns, however, that a crucial distinction must be made between general awareness-raising and the acquisition of loyal customers.
"It depends on the offer, but normally you’d expect a Groupon discount to bring in between 5,000 and 15,000 customers whose data you can then keep," he says, "but in our experience they are quite promiscuous customers, in that they tend to be deal-chasing Groupon groupies who rarely come back to your company. So, I’m not sure the databases are that valuable."
Another pitfall of a strategy that lends itself purely to raising millions of people’s awareness of a product is that the deal might prove too popular. The much-publicised plight of Reading-based cupcake makers Need a Cake acts as a cautionary tale – the company warned other small businesses away from Groupon after it was allegedly almost bankrupted by unprecedented take-up of its offer.
Groupon’s Richard Jones says that there are now much more stringent procedures in place to make sure Groupon only allows businesses to offer discounts that are sustainable for them. "And then if there is a case when suddenly a business is struggling to serve, we’ll always work very closely to help them," he says, "whether that’s by extending the redemption period, or – in exceptional cases – by looking at refunding some of the vouchers."
But, understandably, some companies are still wary of the problems that can be caused by huge discounts offered to millions of customers.
"I’ve seen directors with fingers that are literally bleeding from packing envelopes three days solidly," says Julian Marsh, photo products and business development consultant at Newton Abbot-based photo finishers Harrier LLC. "They’ve gone into the photobook market and they’re getting 50 orders a week, and it all looks quite profitable, so they think, ‘If we were doing 1000s of these through discounting, it would be great’. But the wheels just come off straight away, because they’re not geared up to handle those kinds of volumes."
In this situation, Marsh explains, the printer can end up doing more harm than good. Making a loss on a product is worthwhile only if people are impressed by it, not if they are put off from ever using the company again by long turnaround times and poor quality products.
So, is there a safer middle ground for companies keen to offer discounts to a slightly smaller cross-section of the population; discounts that aren’t so generous that they threaten their solvency or reputation? With over 200 competitor discount sites serving the UK (estimated by JP Morgan), the answer seems to be a resounding ‘yes’.
"We’ve also used LivingSocial in the past," says CEWE’s Duncan Midwood. "Although they don’t give you anywhere near the same level of exposure because they’re much smaller, they’re much more generous with their terms, so you can actually make some money out of it."
Smaller sites like LivingSocial and KGB are more rewarding than Groupon, says Midwood, when it comes to unredeemed vouchers. Strange though it may seem, quite often a consumer will buy a voucher for a service, but never use that service. When a discounted product is purchased from a discount website, the money goes initially to the site and is then passed onto the printer. When that product is not redeemed, Groupon says it will negotiate whether this money will still be handed to the printer on a case-by-case basis, but Midwood says that more often than not, smaller sites give printers the value of at least some of the unredeemed vouchers.
VoucherCloud and DealCloud (discount websites specialising in local deals) director Greg Le Tocq adds that smaller sites will be more likely to take less of the overall percentage of sales than Groupon.
"Groupon will typically take more commission than us," he says. "VoucherCloud’s commission ranges from 30% to as low as 5%. If the company wants more exposure, it can then pay more to appear on our homepage, to get on our featured listings or to appear in one of our newsletters."
Groupon argues that it actually decides commissions on a case-by-case basis, so it will not necessarily be higher than its rivals. Even so, is advertising a discount on an online deal website a must for every printer, or do other platforms for discounts work better for some companies?
"I think in terms of vouchers, it’s worth noting to smaller and independent retailers that they can put their own vouchers on their own homepage when looking to entice new customers with their own SEO work," says VoucherCode’s Evans.
Emailing tailored discounts to customers in an already-existing database can also be fruitful, says Evans. "Even if a business only has a small customer list, it’s a good idea," she says. "In fact, small firms with small client databases are in the best position to manage them: they can more easily send individuals bespoke discount offers."
Printers might also consider that offering a percentage off the retail price is not the only way to sweeten the deal. A more cost-effective option for printers, says HMA’s Hill, is printing an extra copy of the same photobook, or adding extra pages or a slightly smarter finish, for free.
"Those offers don’t cost the printer much more, but will be seen as just as valuable as a discount in the customer’s eyes," he says. "For example, if they’re paying £50 for two photobooks and get a third free, they’re likely to feel that book is worth £25."
This can be a good way of avoiding one of the chief pitfalls of discounting: devaluing the product’s image. Which begs the question of whether there are instances in which it is better not to discount at all.
"It’s interesting that the people who don’t seem to do lots of discounting sometimes end up being the most successful," says Harrier LLC’s Marsh. "People are spending more time on photobooks, so they might be looking for good software that allows them to upload photos easily and – if it’s a gift – at high quality. These selling points might, in some people’s eyes, actually be more important than price."
Even if a competitive discount is offered, adds Marsh, it’s factors such as ease of ordering, delivery time and the quality of the product that will ultimately dictate whether the offer has been a success.
So, the golden rules of offering discounts seem to be that quality and service are still key (and perhaps in some instances more important than a low price), and that the best type of discount depends on the product being sold; how that product is most successfully and sustainably marketed.
A key thing to bear in mind along with these rules, says Marsh, is that the consumer can be an unpredictable quantity, and so finding the best discount scheme can be a matter of trial and error. But with a bit of patience and a lot of forethought, discounting could well be an option that B2C printers should look at more closely.
Can the code be switched off if demand exceeds expectations? Some websites may take a discount down if the offer turns out to be more popular than expected. They won’t all agree to this option, though, so it’s always worth discussing beforehand.
Do you need to use an affiliate network (a marketing middle-man between you and the site) to offer a scheme on a website? Some schemes, like VoucherCodes, require all customers to use an affiliate network. They can, says VoucherCodes marketing and communications manager Helen Evans, be a good way of receiving sound advice on a discount strategy. "If you look into affiliate networks, there are some who deal with smaller companies and some with the big guys. So there is something out there for everyone."
Intelligently discounting at the right time of the year is key. If discounting to ensure cashflow during quiet times then it’s important to identify which months these are. But if raising awareness through discounting, the opposite strategy might be employed. "For us, discounts are best rolled out around key events – like Christmas," says CEWE’s Duncan Midwood. "Although there’s the argument that you shouldn’t discount so heavily then, because people will buy them as presents anyway."
Be careful not to use a discount site where your offer will be lost among big high-street names. This can be a danger with a site like VoucherCodes, Helen Evans says, because of the site’s emphasis on its top 20 offers each day. Whereas Groupon, says Evans, allows smaller companies to be noticed.