Here’s a cautionary tale about the potential problems using a service like Groupon…
…and how having too many customers can be a BIG, business-threatening problem…
“Groupon demand almost finishes cupcake maker”
In brief…
“Rachel Brown, who runs the Need a Cake bakery in Reading, Berkshire, launched an offer via the money-saving website in the spring in which she offered a 75 per cent discount on 12 cupcakes, which normally cost £26.
However Mrs Brown vastly under-estimated the popularity of the deal and was besieged by 8,500 people who signed up for the £6.50 bargain.
She ended up losing between £2.50 and £3 on each batch she sold. She also had to pay £12,500 for the extra costs of hiring staff and sending the products out, wiping out profits for the year for her business.”
Ooops!
My heart goes to Mrs Brown who I’m guessing is a decent, well-meaning person who is making a great product and like the vast majority of business-folk is doing her bit to create wealth and keep the economy going.
However, I’m guessing that she’s never read “The E-Myth” or any of its variants and she probably has never really studied marketing.
Big mistake.
“Rich Dad, Poor Dad” author Robert Kiyosaki likes to say…
“People think that financial education is expensive. Try financial ignorance.”
…and I suggest that the same applies to marketing and business education, if not more so.
So, what could Rachel Brown have done to turned this promotion into a profit-maker rather than a near-death experience? Some suggestions…
1) Limit the number of coupons available OR put a strict time-limit on the promotion. I confess I’m not familiar with Groupon’s terms but I’m assuming this can be done.
2) Offer a smaller discount. The offer in this case was for a whopping 75% discount on a premium product that offered a degree of customisation. Hardly surprising there was a rush to take advantage of the deal!
3) Offer an upsell or complementary purchase when the coupon is redeemed. The sometimes mocked, but oh-so-successful tactic of “Do you want fries with that?”…not fries with cupcakes, of course!
4) Get the contact details of the customer so that you have the opportunity to make repeat sales. The article mentions “sending the products out” so I hope that they’ve kept those names and addresses.
Really, the only point of running a promotion like this is to bring in new customers and it only makes sense if you convert those people into long term buyers. To do that you need an effective strategy in place to capture their details and add them to your list. If you don’t have a lists of customers and prospects, you don’t really have a business.
I’ve covered this before…
“Marketing And The Holy Groupon”
…unfortunately it doesn’t seem that Rachel Brown is a reader of this blog. Expensive mistake! She could have saved herself a lot of money and heartache.
I hate mindless discounting. Call me a marketing snob but what skill is there in simply cutting prices?
It has a number of other drawbacks too…
1) It can devalue your brand. In the case of Rachel Brown’s cupcakes, she was offering individual decoration and a number of options! A premium product…so why the massive discount?
2) It can annoy existing customers who in the past have happily paid full price. They may not be so happy to do so in the future.
3) Used indiscriminately you can end up “training” your customers to wait for the next deal.
Just so happens that lately I’ve been looking into how to use coupons effectively and I have a few new tricks up my sleeve. If you’re currently using coupons and want better results…
…drop me a line via the form on the “Contact Kevin Francis” page.
I wouldn’t want you to run into the same problems as poor Rachel Brown.