By Jim McCarthy Mar 29, 2011 0 comments

What Do I Think of Groupon?

I got a question from Erin at the Forth Worth Opera, who asked me to opine on the subject of Groupon and “similar coupon/offer sites.” She asks if “they’re a good deal for the patron…and the business.”

The first thing I think about Groupon, Living Social and a couple others, I think they’re absolutely astounding in that they’ve been able to grow at a truly startling rate and do so without imploding.  It’s impressive and my hat’s off to them.  Entrepreneurship is a tough game, take it from me, and while it might be true that Groupon and Living Social caught lightning in a bottle, that doesn’t make it any less of a feat.  Well done, boys and girls.

Next, I’d like to reiterate my long standing position on what outlets a venue should use in promoting its business: use any tool that makes sense for you.  Since I am unable to guarantee your venue that I will provide you with all the sales support that you will ever need to make all your organizational dreams come true, I am not in any position to tell you not to use another tool or program that works for you.

Of course, nobody else is either, and so the minute somebody comes to you and says they don’t want you to work with other marketers, you need to ask them if they’re willing to provide you with 100% of your desired sales above and beyond any that you make for yourself and whether they’ll be making those payments semi-monthtly and can they do an EFT?

But what does it mean for a program to “make sense” for a venue? I think there are two key things here:

First, it should be ROI positive, at least in the medium-run.  That is, if it doesn’t return significantly more dollars to you in the first six months than it costs, you should consider spending your time doing something else.  Not that a one year horizon is super long to wait for a payback, but you’re in a retail business (and yes, live entertainment is a retail business).  Six months is plenty long to wait for your marketing dollars to come back to you with a whole bunch of new friends.

Second, it should build the base of people who like what you do.  If you’re not reaching a new audience with the potential to come back for more with the program you do, it might not be a good program.  Be realistic in that if 100 people come to see a show from any promotion, even one that you do, only a small percentage are going to like what they see enough to come back.  That’s just reality.  But if that percentage roughly equates to the same percentage as those who choose to donate their million dollar lottery winnings to the local orphanage, it’s probably not a good program.  Because our audience is specifically interested in live entertainment, we tend to send people to venues that have a chance of developing a long term interest in where they’re going.  Some people have told me that the deal of the day patrons are more about price and move from offer to offer, but that could be just hearsay or anecdotes.  Again, it’s about evaluating this for yourself.

Groupon explains the way it should work like this: you get a lot of promotional value out of the offer; lots of people buy a product, on which you might lose some money, but it all works out because a bunch of new people know about you and come back and buy later.  In effect, this is the exact same way that advertising is supposed to work, so if you’re comfortable with the risk there, this kind of thing might make sense.  I’d rather be doing Deals of the Day than buying print ads in the local paper, that’s for sure, so if you’re doing that and no one’s questioning it, you might be worrying too much about whether a Deal of the Day is a good thing.

Our model has always been oriented to being ROI positive from the first transaction and fundamentally about reaching people who have an expressed interest in the type of thing that our venue partners are selling.  That is, they have a specific interest in getting out to live entertainment more, and we’ve been there to match them up with our venue partners in a way that’s instantly profitable and instantly builds the base of audience and continues to do so, day in and day out.  The fact that we’ve maintained day to day marketing relationships with some of the finest brands in live entertainment for nearly a decade suggests that such a thing might actually be happening.

On the other hand, the short term promotional power of a good Deal of the Day is absolutely spectacular and could be put to excellent use if you’re smart about it.  You need to model it financially so that you can see what it will take to get ROI positive, and I hear from venues that logistically, it tends to be something that takes some preparation as well and can throw operations off balance if you’re not prepared to deal with it.

More broadly, I think discounting should be done a certain way, and I talked about it at length here and in a long video here and a shorter video here.

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