Monday, February 14, 2011

is groupon a “road-to-ruin” for local retailers?

In a February editorial published at, marketing guru Al Ries called Groupon – and the whoring of coupons – a “road-to-ruin deal for local retailers.”

“Presumably, all those consumers who bought products and services for 50% off are going to be happy to return to their local retailers and return to buy those same products and services at full prices,” Ries asserts. "That's not going to happen."

Speaking about the "coupon culture" as a whole, Ries has a point.

Coupons are like crack to companies looking for a quick fix in sales numbers. As such, it’s easy for companies to get addicted. And, unfortunately, it can come with some harsh realities after the rush wears off.

Companies that routinely use coupons lock themselves into a dangerous pattern where consumers shop only when product is on sale, or discounted by coupons.

It’s hard to lay off that sweet, sweet discount, man.

Ries points to department store retailers like Macy’s and Kohl’s who have begun to rely on steep discounts to move product rather than the strength of their brand. It’s basically a discount war.

Personally, I find this to be true. I love Macy’s because, from time-to-time, they have a huge discount on dress shirts and ties. Sure, the quality of the store will push me to Macy’s above JC Penny, Belk, or Sears, but I don’t find myself frequently shopping at Macy’s unless I run across a sale.

As a cost-conscience consumer, I know that all I have to do is delay my purchase by a little bit of time, and that the same shirt that costs $39.99 will be $15.99 two or three weeks later.

The distorting effects of coupons also fueled skepticism of the potency of Proctor & Gamble’s Old Spice commercial featuring “The Man Your Man Could Smell Like.” During the explosion of publicity and social media conversation regarding this pop-sensation of a commercial, a simultaneous marketing campaign using coupons was launched.

“It's hard to determine how much of (the sales increase) was due to an aggressive couponing campaign which was in market simultaneously,” says Adweek’s Joseph Jaffe, though he did admit that there was some impact that could be attributed to the viral success of the commercial.

But, is Groupon the same as a packaged good, or department store?

I have to disagree with Ries on this one. While discounts and coupons can ultimately undermine the strength of a brand when they become assimilated into the shopping behavior of a consumer, the platform of Groupon is much different.

The variety of Groupon’s clients makes discounts unpredictable. There is no reason to expect that a discount for an eatery will appear at a specific time in the future – or ever again. Consumers can’t anticipate the appearance of an additional discount in a way that will cause a delayed sale.

If Groupon’s discounts from clients rotated on a predictable schedule – say, a discount to a local retailer that appeared every two weeks – then Ries’ comments would hold some water.

But, it doesn’t; at least, not yet.

Retailers advertising on Groupon have a chance to offer a discount to their products much in the same way a loss leader is used to entice future sales. It’s more of a premium than a discount.

Retailers with relatively small advertising budgets can get a high profile spotlight in the community through the use of Groupon, which is the appeal that has sent Groupon’s value through the roof. As more retailers partner with Groupon, the more varied the discounts will be, and the less likely company’s are to fall into the “coupon trap” Ries fears.

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