Don’t Buy Your Friends – Avoiding the Groupon Pitfalls

A few months ago, I posted a blog about how everyone is competing to become the next Groupon in Canada.  After speaking to a few e-commerce veterans in Canada who are cautious about getting into this space, I still stand behind my belief that this is a potentially dangerous business model.  The challenge in offering such large discounts to consumers is that we (as the consumer) are being taught to only like a brand if they are giving us a huge discount.  Yes, the economy has been tough and we are all out to save money and find a good deal, but what ever happened to paying someone for what their product or service is really worth?

Of course, there are some companies who may be marking up the price of their products too much and taking consumers for a ride. However, if the price is not too ridiculous for a really great product that I believe in, I will most certainly pay full price for it.  If we’re going to help struggling businesses out of a recession, wouldn’t paying them what they’re worth be part of the solution?

Yesterday, I received a re-cap of the most popular marketing charts of 2010 from MarketingProfs that highlighted the fact that the number one reason why people “like” brands on Facebook is because that brand offered them a deal or discount in order to “like” them.  Again, I am the first to go to a good sale to find a bargain but I see a lot of danger in enticing fans/consumers/users to “like” your brand just to get 20% off your product at purchase.

Google insights for search shows that during the start of the recession, Canadians were going online to find deals and coupons because they were concerned about saving money.  Retailers jumped on this trend and offered serious discounts just to get people to buy in their stores – and I can totally support that cause.  However, I do fear that all of this mass discounting via Groupon, Facebook, etc. (I bet you can name 5 other group discount websites right now) is training consumers to like you for the wrong reasons.  The chart below shows that the search behaviour for coupons and deals has sustained the same level of interest in the past few years.  This is likely partially due to the fact that people are still staying conservative due to the strain on the economy.  However, it is also likely due to the Groupon craze and the fact that we are being trained to seek out discounts.

As a result of this trained behaviour, I have one question for retailers. Didn’t your mother ever tell you that no one will buy the cow if they can get the milk for free?  Why would you then ask people to like you online – just to buy a piece of you at a discounted price? recently published an article about the fact that coupons cheapen your brand in the long run.  They argue that “discounts train customers to think your regular prices are too high, and to wait for the next coupon before they shop again. They might eventually refuse to make any purchase without a coupon.” This is definitely a word of caution about the sustainability of a business model based on heavy discounts.

Of course, there will always be good business reasons to offer sales and discounts, I would just caution brands to be aware that it’s always better to build customer relationships based on quality and substance, rather than simply buying your friends online.

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