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Benefits and Pitfalls of Groupon-Type Marketing

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It’s hard to believe that the first Groupon deal-of-the-day offers arrived in your email inbox less than four years ago. although there were modestly successful predecessors, Groupon (and its competitive cousins Living social, dealster, BuyWithme), has become a consumer mainstay.

And why not? The business model is simple genius, a total “Why didn’t I think of that?” They offer big discounts to consumers on everything from restaurant meals, to fishing trips, to hotel stays, to landscape or irrigation contracting services. The deal-of-the-day sites take advantage of gigantic lists of customers, clever writing, and massive bargains to reel in buyers.

Groupon or Living Social may be just the thing to give your business a boost. For John’s Landscaping, San Antonio, Texas, these sites have been a successful resource to which the company has returned profitably again and again. On the other hand, a poorly conceived deal can be a disaster, as it was for Trio Lawn Care, Lawrenceville, Georgia, back in 2010.

Before we learn the lessons of a few years of industry experience with deals of the day, it’s worth a quick recap of how the whole thing works.

As a business owner, you contract with the deal website. Together with the website, you create a deal that is offered via a daily email blast. (You could be the feature deal of the day, or listed on an “all deals” click.) For example, you might offer a 90-minute landscape design consulting session for $56, a 50 percent discount from your regular hourly charge. Jennifer Cummings, owner of Full $45 of lawn care for $20, for yards up to a half-acre. He limited the geography to several counties in and around Atlanta.

With the benefit of two years of hindsight, Dorelus admits he should have limited it even more. “We were guinea pigs for the use of Groupon in the landscape industry,” he admits ruefully, “and not in a good way. We ended up selling more than 1,500 Groupons, and we were not set up for this type of growth overnight.”

The company ran its promotion heading into the July 4th weekend of 2010. “The timing was wrong, too, since everyone wanted their work done that weekend—they wanted their lawns done then and there. We tried to do the best we could, but because we didn’t limit the geography sufficiently, we found ourselves driving 50 miles outside our area to fulfill a single offer,” Dorelus recalls. “Meanwhile, Groupon didn’t want to change the deal while it was running.”

There were other problems within Dorelus’ deal. For example, he didn’t limit the number of coupons which one buyer could purchase, and found himself doing a year’s worth of work at a very low price.

In hindsight, though, geography was the killer. Dorelus believes if he’d limited his offer to just one or two specified areas, the numbers would have been manageable, even taking into account other glitches. “We were excited with the exposure,” he says. “We’d be exposed to new clients in the area. But, if you’re going to do this, be specific with the deal and the details.”

Offer the right service

For John’s Landscaping, deals-of-the-day have been a business boon, according to Jill Prater, who runs back-office bookkeeping for the firm. Prater says that the company has been successful with Groupon by carefully offering the right service, at the right time, for the right price.

The company started with Groupon toward the end of 2010, when it offered a discounted mulch and color package in December. The price was $249, discounted from a “list” price of $873. That offer resulted in a $34,000 increase in revenue, according to Prater. A second offer followed in the spring of 2011, where they advertised a 15-foot by 15-foot flagstone patio at a discounted price of $1,995, with the proviso for a price increase if conditions required it. This was discounted 56 percent from their starting base price of $4,500.

That offer was even more profitable than the first. “We got an $83,000 revenue upgrade out of that one,” Prater relates. She says that others who are going to try Groupon need to think about the kind of offer they’ll be making, and how they want to price it. “It’s not so difficult to figure out the economics,” she advises. “The math is easy, whether you’re doing a special through a deal-of-the-day or running your own special. Don’t price yourself down to where you’re not making money.”

Some of the most effective deal-of-the-day offers in the landscape and irrigation arena have to do with recurring services like fertilization. If the normal fertilization cycle is five times a year, and you make a Groupon offer for the first two times, then you’ve got a decent chance of getting your customers to ask you back for the rest of the cycle. At that point, you can go to your regular fee.

Greenwise Organic Lawn Care of Chicago, Illinois, is a firm believer in deals-of-the-day for partial fulfillment of recurring services, according to marketing director Michael Kormanik. The company has a labor force of 25 at peak season, and sends out organic-only mowing crews, fertilization crews, and design/build crews. “We’ve done well with Groupons in the fertilization arena,” Kormanik says. “When customers see how good their lawn looks after their first one, they want to bring us back.”

Consider it marketing rather than moneymaking

Kormanik came to Groupon because it was literally in his backyard—the company’s headquarters is right down the road in Chicago, and he was personally a Groupon user. He urges others in the business to think of the daily deal sites as another form of marketing, instead of as a big profit center for your company.

“We don’t have a huge marketing budget, other than lawn signs and painting trucks,” he explains. “We have a website, we write and send out a lot of press releases, and we’re pretty active in social media like Twitter. But the bottom line, literally, is that we don’t have a lot of dollars.”

Greenwise thinks of Groupon as a good way to get samples of what their company does in front of the public. “We think if we have a great product, all we have to do is show it and they’ll want more. Then, it’s up to us to convert the Groupon user to a regular customer. I estimate that somewhere between a third to a half of our Groupon or Living Social customers get converted over to another one of our services.”

Benjamin Dusart, who came out of his grandfather’s nursery business to own and operate Dixon Hills Landscaping in the western New York community of Camillus, is seeking the same kind of conversion numbers. At press time, he was in the midst of a Living Social promotion that offered two hours of landscape services at $46, or an hour of landscape design consultation at $49. Both represented a 54 percent savings over his regular fees.

“I’m in the process right now,” Dusart says. “I’ve tried to advertise before in Clipper-type publications, and this seems to me to be more effective. Look, when I go out to talk to a customer who calls about a potential job, I think I’m getting 30 to 50 percent of the pitches I make. Here, it’s half off just to get your foot in the door, but at least my foot is in the door.”

Dusart talks about how he just made a recent major design/build upsell to a customer who came in through Groupon. He looks to the deal sites as generating another kind of sales lead.

A reasonable target for conversion to customers who will buy other goods and services, says Cummings, is 25 percent of respondents. “Whether I can do that or not is firmly on my own shoulders.”

Find the right site

These days, companies exploring deal-of-the-day marketing find themselves with a number of options. A quick Google search limited to your geographic area will turn up the local players. Groupon and Living Social may have the furthest reach, but there are others. Local newspapers are even getting into the act on their own websites and via print offers.

Every market is different. In and around Salt Lake City, Utah, for example, the television and radio station KSL has a wildly popular website with classifieds and daily deals. A little prep work here can go a long way.

One overlooked option may be Angie’s List, a website that allows consumers to rate businesses of all kinds, from landscape contractors to auto repair shops and everything in between.

“When people think of Groupon, they tend to think of restaurants,” says Kormanik. “When they think of Living Social, they think of manicures or massages. They tend to think of deals that cost less than $29. They’re going there for impulse and fun buys. I’m not sure that the majority of people who go there are thinking about a $5,000 hardscape job.”

Kormanik has come to like “The Big Deal” at Angie’s List, because that site tends to attract people specifically looking for goods and services. That helps to self-select the customers. Plus, you can’t offer a “Big Deal” at Angie’s List unless your company has been reviewed there in the specific arena of the offer. “We haven’t gotten reviewed there for snow removal,” Kormanik relates, “so we can’t make an offer about it.”

Don’t forget the fine print

The Garden Doctors, a nine-employee, five-year-old landscape contracting company in Harahan, Louisiana, made a recent Living Social offer of $250 worth of landscape design services for $125.

According to Reagan Sidney, office manager at the firm, the offer worked because the company paid close attention to the fine print.

The coupon limited customers to one voucher per household. Appointments were required, and subject to availability. Services were limited to a 60-mile radius. All services had to be rendered in a single visit. The customer had to redeem the coupon within five years. There had to be a 24-hour notice for rescheduling an appointment. Most of all, services were strictly limited to landscape design.

“We got a lot of calls,” Sidney says. “People were hoping to use the coupon for services, but we didn’t want to do that. We did get six people to actually buy. That may not sound like much, but to find six new customers any other way isn’t so simple. We could flood an area with signage, but those signs cost money and take time to put up.”

Sidney says the experience was good enough to try again; the Garden Doctors plans to make another Living Social offer next year, at the start of caterpillar season.

Deal-of-the-day marketing is not for everyone. Careful planning and preparation is the key to making the right offer at the right time for the right price. If you follow the principles in this story, though, the chances are good that you’ll be another Groupon or Living Social success story. That’s the kind of success with which no one will argue.

 
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