“Should I do a Groupon?” I hear this question several times a week. From small business start-ups to Fortune 500 companies this seems to be the hot topic.
When you scour the Internet on this topic there seems to be a healthy debate. For me what I look for is the numbers and the effect it can have on your current clientele.
In the New York Times small business blog they break down the math of doing a Groupon. In their example they look at the cost of acquisition of a traditional customer VS the cost of acquiring customers through a social coupon. The confusing part of this is tracking each variable and making sure you know what your costs are along the way. The thing they don’t take into consideration is customer defection (more on that later).
Anyway you look at it Groupon costs money. Groupon is advertising and why many businesses feel so comfortable doing it is because they only pay this money out to Groupon based on how many they sell. They feel that since they can cap the number sold they have a good feel for this advertising expense upfront. This can be very dangerous. Here’s why:
Let’s say you’re a local dentist office and need to get new patients, Groupon looks appealing. They bring in all the testimonials from other dentists who have used it with great success and show how you will get 200 new patients! What did acquiring those patients really cost you?
In my previous blog “How to determine your marketing budget” we looked at formulas to determine how to reach revenue goals through marketing. This is why knowing your customer acquisition cost for Groupon is so important. In the dentist example if you charge $200 for an exam, x-rays, and cleaning and your overhead costs run around 40% you make $120. If you do a Groupon and you’re taking 50% off as requested and then giving another 50% of that total back to them you’re making $50. That means you have lost $30 on each new patient.
This is where it gets confusing because you’re not paying $30 to acquire that new patient your paying $150! That means your marketing expense to acquire a new patient is 75%.
Then what happens when regular patients decide not to come in for their routine check-up and wait for your next deal? Customer defection has to be considered in the costs of your social coupon campaign.
I realize the argument can be made that it’s better to fill up the chair for a hygienist last minute than to leave the time slot and chair open; however, if that was the case how come airlines don’t discount their fares the closer they get to departure? It’s just an empty seat no one was going to sit in anyway. Airlines may get a pass since flights are time sensitive but what happens when people don’t come back for more of your service because they’re waiting for another Groupon? What if it’s not yours? What if you’re adding 20 more new patients and you become less effective treating the patients who pay full price? Will they come back? Will they recommend you? What will that do to your brand? What do current patients think when they see the details and expiration date of your Groupon on the counter when they are checking out at full price?
These Groupon patients may need more work, become regular patients, and may end up spending more money on other procedures but the fact is coupon users are loyal to their coupons not the place that supplied them.
So what’s the alternative?
Give back to your current customers. Do exactly the opposite of what Groupon is trying to accomplish and reward your current customers not the new ones you don’t know yet.
The best way to do this is to give your current patients something they actually want. A big mistake here is offering a current patient something that won’t motivate them to recommend your practice. Offering them 10% off their next procedure might seem like a great value for you and them but in essence they want immediate gratification(see “How small business can create strong customer loyalty”)
A good option for a loyalty program for local dentists is to offer a gift card to a local grocery store or popular retailer for every new patient a current patient recommends. (Be sure to check with your local dental board. Some states don’t allow value gifts for referrals) Imagine how your current patients will feel when the sign on the counter reads “To our current patients we appreciate you choosing us as your dental provider. We know other offices provide social coupons and specials to attract new patients. We feel it would be better to offer those savings to our current patients. So from now until (insert a date here) we will be offering $25 gift cards to (your local grocer) for each new patient that you recommend that completes an appointment. Ask us about the details and thanks again for being part of our family!” Seventy eight percent of people trust recommendations and 14% trust advertisements. Have that current patient base be your recommendation source!
So now look at the math: $200 for exam, x-ray and cleaning – $25 gift card = $175 in new revenue. That’s $125 more per patient than Groupon (It’s also not costing you money). Let’s compare a customer loyalty program to Groupon without even considering future procedure revenues or eliminating customer defection. If a customer loyalty program brings in 10 new patients a month that’s $175 X 40% in cost = $105 in per patient profit X 10 = $1050 in profit. If Groupon brings in 10 new patients a month that’s $30 you lose per patient = ($300) lost that month. The difference is $1,350 a month.
Bottom Line: People are still going to care about their smile whether you offer them a coupon or not. The big question remains do you want a new patient who wants a deal or do you want a patient who will bring you new patients?
Start asking these questions and be sure to talk to a professional marketer to find out if a social coupon or customer loyalty program is right for your marketing strategy.