Wednesday, 12 October 2011

Coupon Conundrum

The positives and negatives of online discounting websites

There is a huge array of online discount sites like Groupon and Living Social sprouting up across the country and around the world. These are without a doubt great deals from a customer standpoint, but what is the benefit to the establishment? What are the positives and negatives in the big picture of online discounts?

The basic premise of these websites is that a company puts a substantial discount on a product or service they provide and in doing so get exclusive exposure on a website. The majority of sites feature only one discount per day, and there is often a minimum purchase requirement to initiate the deal. From a restaurant standpoint, there is some control on the amount of the discount that is offered, although the majority of sites give priority sequence to those establishments willing to offer greater discounts.

The benefit to the customer is obvious, and the coupon’s popularity is undeniable, especially with the 18 to 45 year old female demographic which make up close to 70 per cent of the customer base for the online coupon sites. This is great for salons, spas, and restaurants that cater to this market. There are however some negative aspects for restaurateurs which should be factored in when deciding to move forward with online coupon offerings.

Realize the dangers

One danger of putting out high percentage discount coupons is that restaurateurs continually devalue their products hoping to instead make returns on different revenue streams or repeat business. The problem with this mentality is that instead of building loyalty to an establishment it seems as if the only loyalty is to the website that provides the discount. Meanwhile restaurants are paying 25 to 40 per cent back to the website that offers a deal that has already seen a 50 per cent price reduction - not exactly a sustainable restaurant business plan.

Over the past three years, the decline in the global economy has made sites like these extremely popular. With increased costs in basic commodities and cost of living, the average consumer’s disposable income has decreased substantially; we are at a point now that most people need to look for ways to cut corners in their spending. At the same time the decline in the traffic through business doors has meant that restaurants are looking at any possible way to get seats filled.

So with the influx of coupon customers, what is the next progression of the lifecycle? Is this a trend that will be short lived with the eventual rebound of the economy, or is the coupon around to stay? While these sites may even the playing field for restaurants with new locations, poor locations, or locations with inferior products or services, is it to the detriment of the industry as a whole?

How online discount websites can work

But what is the alternative? Most print and media ads cost far more than the social media sites and have no tangible results. With these coupon sites, we can clearly see the people coming into our restaurants and feel the paper in our hands. This sweeping trend has done what marketing departments everywhere continually strive to do – take something that is inconclusive or immeasurable and make it real and tactile.

Regardless of your viewpoint, the fact is undeniable that these sites are changing the way that a large segment of customers spend their money, and while it may not be a long term solution, the results of getting people in the door are staggering. It is a chance to infuse businesses with new clientele that operators’ may draw from in the future. With this marketing tool, the view must be long term, and if you expect to have any recapture rate, you must believe in your product and its presentation 100 per cent. There are constantly differing viewpoints on these sites, and it is up to each individual restaurateur to make an educated, well thought out decision when navigating through this coupon conundrum.

Good luck!


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