Since its inception in 2008, Groupon and other group coupon purchasing opportunities have popped up around the globe. The purchaser receives good deals, and the merchants get free advertising.According to Groupon’s Web site, the intent is to offer unbeatable deals to entice the consumer to try out a new product or service.Groupon, KKTV 11’s Dollar Deals, the Gazette’s Deal of the Day and LivingSocial are all group coupon dealers. The businesses that provide the discounts are merchants. The coupon dealer offers the merchants free ad space for a specified period of time. While the ad runs, people buy the coupon, usually online directly from the coupon dealer. Once the time period is over, the ad stops running. The coupon dealer pays the merchant for coupons sold, minus a percentage.There are pros and cons to this method of advertising, and both the dealers and merchants outlined them.On the pro side:No upfront cost to the merchantPersonal trainer and owner of Fit Fast, Justin Liedtke, said he thinks this type of advertisement is the best way to market his company. “It’s win-win for me,” he said. “I only get charged on what I sell, and by then I’m already selling it. I don’t get charged for my ad to run all day; (the dealer) just takes a cut when someone buys it.” Liedtke said other types of advertisement do not garner the response he received running his ad through a coupon dealer. “I’ve dropped a ton of money upfront on mailers and that’s really a scatter-gun approach,” he said. “The mail is already flooded, and it’s way too easy to just throw them away.”Lilian Critchlow, owner of Noa’s Art Photography in Manitou Springs, agreed. “You don’t really make money, but you don’t pay money either,” she said. “For me, it’s not for the money, it’s for the advertisements.” Critchlow has been featured as the Gazette’s Deal of the Day, which meant a print ad in the newspaper, an online ad on the Gazette’s Web site and a radio ad on KLITE 106.3. “Not only do you have those advertisements, but you have these new clients who show their pictures to their friends and (the friends) come in,” Critchlow said.Target audience reached more easilyGroupon and LivingSocial both offer free e-mails to consumers with their daily coupon package. The consumer signs up to receive the e-mail, and all the database maintenance is done by the coupon dealer. “The average response that I get is at least 200 percent more because these people asked to receive the e-mail,” Liedtke said. “People who buy this had already been thinking about it, and it helps me get that person.”Barb Berntsen, owner of Happy Hounds Pet Grooming, said mailers aren’t as effective for her type of business. “I don’t know if everyone I sent it to even had a dog,” she said. Running as a side deal through Groupon, not the main deal of the day, allowed her ad to run longer (four days rather than one day). She saw a potential to reach more dog owners, she said.Client retention“I design my coupons so that people who have never tried our service will try it, then come back and buy it at the regular price,” said The House Chef owner Robert Brunet. Brunet cooks meals in the customer’s home. “It’s allowed me to build my brand and get exposure to people that I may not have reached otherwise,” he said.Groupon spokeswoman Kelsey O’Neill said that Groupon works with the merchants to help them determine how to bring customers back. “We are all about helping merchants prepare, capture information and bring people back,” she said.The coupon dealer does the legworkThe business model of the coupon dealer is based on the number of coupons sold. If the coupons don’t sell, the coupon dealer makes no money. Therefore, the coupon dealer handles the bulk of the work. “Groupon said ‘you don’t have to lift a finger. We’ll run all the credit cards, we’ll do all the artwork, etc.'” Berntsen said. “KKTV did a really great job,” Brunet said. “They came to my home, did a commercial television spot and ran it as promised.”Chris Menigoz, president of Air Comfort Green Seal 212 in Falcon, has signed multiple contracts with Groupon. “When you do well with Groupon, they take the extra step to keep you on board. We’ve put it in their hands and have been very successful.” Menigoz’s company is an environmentally green maintenance service that uses all-natural cleaning products and green equipment.O’Neill said that Groupon accepts businesses that approach them with a deal as well as proactively reaching out to businesses. “We hone in on the best local businesses that we think our customers would like to get an unbeatable deal from,” she said.Both sides discussed the disadvantages to the group coupon method of advertising. On the con side:Tipping pointSome coupon dealers set a tipping point, which is the minimum number of coupons sold to allow the discount to take effect. Because of Groupon’s tipping point, Brunet’s coupon was not redeemable. The deal required that 25 coupons for a cooking class be purchased, but he only sold 16. Since then, he has advertised with other group coupon dealers and has had more success offering a different deal.”Our sales reps work with (the merchants) to see if Groupon will work for them, to see if it’s a business model that can be transformed into a Groupon deal to offer to multiple buyers,” O’Neill said. “If so, we usually set the tipping point low enough where we can guarantee it’s going to be met. (It’s) based on a mathematical formula to see what the merchant can handle. If a deal didn’t tip, we can certainly work with the merchant to make sure the deal tips, even doing it that day.”Small profitThe amount both the coupon dealer and the merchant make is directly proportional to the amount of coupons sold. However, since the discounts are usually large, the amount the merchant makes is small compared to the standard cost of their goods or services. “We make a very small profit but it’s all based on numbers,” Menigoz said. “The faster we work, the faster we can move on to the next house.” “My time doesn’t get paid for, but I’m hoping word of mouth will bring in new clients,” Critchlow said.The cut the coupon dealer takes can be as high as 50 percent, although O’Neill said that number varies based on the deal. For Berntsen, who sold an $80 grooming session for $35, she gets $17.50, minus the credit card processing fee, which is roughly 1.25 percent. “I think it would be silly to think that I would make money on this deal,” she said. “But if that person never walked through the door, I wouldn’t have them anyway.”
