Group-on has revolutionized how companies can increase their sales by providing promotional discounts. Companies that use these services have seen drastic increase in consumer traffic, but do these cyclical increases stay constant after the promotion is over. The overflow of new customers created by the Group-on promotions creates a new hurdle for small companies. How should companies take into account extra labor and other extra costs when considering the Group-on promotions. Should they hire temporary workers and increase their inventory levels to temporarily meet this phenomenon of increase demand or is this new constant demand a new "normal" that management has to deal with by hiring permanent employees and changing their inventory ordering process.
Moreover, the use of Group-on requires retailers to provide services/products well below their profit margins, and at times may even take a loss when using the Group-on services. Critiques of Group-on in the article "Should Your Company Use Group-on to Increase Sales" have suggested the bottom line is that Group-on is a powerful tool in fulfilling customer acquisitions (new customers), but beyond that Group-on may require the retailer to markdown their products by as much as 50% on top of a variable cost of $2 per transaction. Thus, leaving the retailers to function well below their respectable break-even points. Should companies bet on Group-on promotions to potentially reap the benefits of increasing their consumer base, or is the risk of taking a loss now in order to possibly increase their consumer base too risky for companies.
Nevertheless, Group-on has proven to be a successful tool in increasing revenue for companies. In fact, as the above article states, Group-on led Gap to attract 11 million in revenues from just one Group-on promotion. The use of the promotion was so successful that Gap's website crashed due to the increase web-traffic to their website. Moreover, Dan Yoo (see my previous blog), a restaurateur in Chicago, has been able to quantify that demand not only increased during the promotion but also stayed constant after the promotion was over leading him to increase market share. This proves that Group-on is successful for certain businesses/business models, and business/management should take into account that the use of Group-on may not increase their bottom-line: profit, but has the potential to increase their consumer base tenfold.
Groupons has defenitely proved to be a good tool to boost sales and revenue for all kinds of companies. But, with every new 'fad' companies have to be careful not to get caught up in it, and have it back fire at them. Specailly small companies that might not be as prepared to deal with the great demand gruopons might create for them.
ReplyDeleteAlthough Groupons prove to increase sales and the customer base for some business's, for others it may cause damages. Everything depends on the type of business and whether we are trying to attract one-time or regular customers. For small companies it is crucial at the begining to attract new clients but later they want them to come back regularly. Having clients that are "low-price hunters" who jump from one service provider to another, attracted solely by the price, will not increase your sales in the future. I think that small companies should rely more on building a strong and loyal client base, which in the long run can provide steady profits.
ReplyDeleteI had never thought about the possible negative effects that Groupon could create for a business. On the day a company has a promotion through Groupon, they would need to take extra precautions to ensure everything runs smoothly for them. In general, I'm sure they would see an increase in traffic. It would be a disaster if they did not have enough staff on hand to provide customer service. Not only would you risk losing customers on that day, you would basically lose potential repeat customers. If a customer goes into a business with a Groupon and has a good experience, chances are they might go back (at least that's what the business hopes for). Management would need to ensure the customer a good experience on the day the business runs a Groupon by doing things like making sure there is the appropriate amount of staff on hand and making sure they have the right amount of product, etc.
ReplyDeleteOn your point about Groupon's service costing retailers too much, Groupon is currently working on a program that lets the vendors set up and promote deals. Under this program, vendors can opt to offer deals at a 10, 30, or 50% level of commission. If this new program is effective and catches on, it will certainly detract many critiques. It is just another example of the companies innovation with their service and another reason why the website has such immense potential.
ReplyDelete"It Depends on the product," that's what I'm thinking... also I could really go for some Quesa-D-Ya's right now. I suppose the only way for a business to gain a sizable benefit from Groupon is to insure that the product will sell either at a profit even with the sizable discount (GAP was probably just getting rid of overpriced excess inventory anyway) or continue selling after the discount is over (from repeat customers). I believe the best is yet to come from Groupon; the potential for rapidly spreading and promoting new products from startups or established firms is virtually limitless.
ReplyDeleteGroupon's services may not be needed by everyone, but when properly utilized they can provide a big boost to a business. If the business is not cost competitive there is no real incentive to use Groupon for their marketing needs. However there are many businesses that have harnessed the power of the services provided in order to increase their customer base and revenues. While Groupon may be great for getting people in the door for the first time, the business most diversify it's marketing strategy in order to retain the customers.
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