I recently read an article highlighting problems some companies using Groupon, a group buying site, have been experiencing http://bit.ly/bLrg89 . While the story documents their tribulations very well, what surprises me is that there is no mention of why each of the companies mentioned in the article decided to use a Groupon in the first place. Put simply, what was the purpose of the promotion they executed? The article documents Groupon’s attempt at problem solving by trying to prevent their clients from being overwhelmed by program results, however, there is no mention of how designing offers to generate the behavior that stores want can also affect the outcome of the program.
Consumers’ purchase motivation, and consequently program participation, can vary greatly among different types of offers. For example, a coupon giving users $20 dollars of food for $10 is a very different offer than 50% off a dozen cupcakes. The first example is a price discount, likely to generate interest from new customers and generate trial, which is good, but would also be taken advantage of by people just looking for “free something”. Those bargain hunters would be less likely to take advantage of the second offer, a volume discount (unless they really love cupcakes) because they are more conscious about spending money than the overall value of what they are purchasing. Volume discounts provide stores an added benefit by driving down material cost, improving the profit margins on the product or service being sold.
Our clients face the same types of issues every day when they are designing co-op programs. They have to decide how to offer funds in a way that both motivates local level marketers to participate in promotions and accomplishes their corporate objectives. Fortunately, they have lots of flexibility when creating co-op fund allocations including message quantity, dollar allowances, percentage discounts, or even rebates based on previous participation, each of which can shape local network involvement and marketing behavior.
The bottom line is that any promotion needs to be crafted with the purpose and audience in mind, and designed properly to generate the desired behavior, no matter who your client. Groupon’s issues only show that, yes, there really can be too much of a good thing.
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