Note: the below post originally appeared as an article in my free Buzz Bulletin eNewsletter. To receive future issues delivered to your inbox, please sign up here.
Websites selling discount coupons for goods and services like Groupon have generated a lot of buzz. But, are online coupons the ticket to success or are there better ways for businesses to generate repeat and referred customers?
In a July 2010 article, I expressed doubt about Groupon and online coupons. Based on what I’ve been reading and hearing from entrepreneurs who have sold discounted products and services through Groupon, my initial concerns were justified.
In a recent interview on The Charlie Rose Show, Groupon’s CEO Andrew Mason said, “We are going to be the savior for small business.” In that interview, Mason stated that Groupon was “able to give one business half the number of customers in one day that the business had previously had in the previous 25 years combined.”
Yet, Groupon customers come at high price. Groupon typically offers coupons that cost half the value of the good or service being provided. And, the product or service provider splits this reduced amount with Groupon on a 50%-50% basis.
For many businesses, this means that an item purchased with a Groupon coupon generates less revenue than it costs to produce the good or service. On 1/7/11, The Wall Street Journal ran a story about U.S. Toy, a retailer with eight toy stores across the country, which offered $20 worth of merchandise for a $10 Groupon certificate.
Jonathan Freiden, co-CEO and president of U.S. Toy, experienced two problems. First, U.S. Toy had hoped Groupon purchasers would buy an extra item once they walked into the store. But most bought only the minimum $20 worth of merchandise to redeem the offer. Taking into account Groupon’s cut, U.S. Toy generated only $5 for every $20 in merchandise sold causing it to lose money on about three-quarters of its Groupon-related sales. Second, Freiden said about 90% of Groupon purchasers were already existing customers of his store.
OCSC Sailing, the country’s largest single-location sailing school and one of our clients, had a similarly underwhelming experience with online coupon providers. Anthony Sandberg, founder and president of OCSC Sailing, said “Nearly everybody who purchased an online coupon was looking for a deal. Once they used their coupons for an introductory sail, we never saw them again. They were off to try the next discounted adventure.”
Anthony believes that online coupon companies commoditize products and services. He feels that businesses would be better served by growing a community of loyal customers. In Anthony’s 31 years of business, these are some tactics that have worked well for OCSC Sailing that other businesses can adapt:
1. Make customers feel special
Anthony or his business partner and OCSC Sailing CEO Rich Jepsen make a point of personally welcoming all new students. “People are excited to talk with the owner of the business – especially when they are first-time customers.” Of course, this makes perfect sense. But, I cannot recall the last time that an owner of a business I frequented went out of his way to make me feel special. What steps do you take to make new customers feel connected to your company?
2. Check-in on a regular basis to ensure satisfaction and increase referrals
During the time that a student is taking classes at OCSC Sailing, somebody other than the instructor will interview him or her to make sure that the educational experience is meeting his or her expectations. If the conversation uncovers that there is dissatisfaction, OCSC Sailing will try to correct it.
Upon class completion, a club manager shares with the student that the school doesn’t advertise and instead relies on positive word of mouth to grow. This has generated more qualified referrals than any online coupon or other marketing program. It also inspires positive comments on influential customer review website like Yelp where OCSC has 40 reviews and the highest rating of five stars. How do you ensure customer satisfaction and referrals from customers?
3. The difference is the cherry on top
Anthony believes that little extras turn satisfied clients into a company’s best salespeople. What sets OCSC Sailing apart from its competitors is a strong sense of community. Anybody who has taken a class at OCSC is invited to participate in free events like lectures and BBQs. Or, they can participate in a “Sign-Up and Sail” program that pairs people looking for sailing companions. These offerings build community while providing students with something that other sailing schools don’t. What are the little extras you do for your customers that keep them coming back and referring their friends?
This year, I would like to create buzz for readers of this blogs as well as continue to share tips and techniques for boosting your business through word of mouth marketing. If you’ve got answers to the above questions or other creative marketing tips, please contact me and you might be the next company featured in this blog or The Buzz Bulletin eNewsletter.