For anyone who has studied marketing, you are probably aware of the Hoover disaster that cost the company £48million. It was a simple concept – buy a Hoover worth at least £100 and get two free flights to America or Europe. The problem was that the two free flights were worth far more than the product, and 200,000 people jumped at the chance to get across the Pond and into Europe for such a bargain price.
A newer version of this type of marketing catastrophe has just emerged through Groupon. A company in Reading, Berkshire, Need a Cake decided to offer a dozen cupcakes for a mere £6.25 – which was a massive saving from the normal price of £26. Step forward 8,500 cake monsters.
Having had to take on extra staff and work through the nights, all to protect the brand image and reputation, the company has lost £12,500 which is equal to the projected profits for the whole year.
There are some obvious reasons, with hindsight in particular, why this type of deal should be avoided. Firstly, the price of the cakes (50p each) is surely about or less than production costs if normally each cake is retailing at over £2? Add to that the commission that Groupon take for each deal and alarm bells should definitely have begun ringing. The point of marketing is generally to raise awareness, not to make a loss. Running loss leaders needs to be a carefully thought out strategy, and should be aimed to result in the sale of a higher value product, rather than just to raise awareness.
For instance, the Sony Playstation 3 was marketed at a loss for one simple reason only – to get a Blu-Ray player into as many homes as possible so that Sony and partners could capitalise on the sales of products such as films, cameras, audio etc that use Blu-Ray technology.
It is not just with Groupon that online marketing campaigns can go wrong (or offline, for that matter). It is important to consider whether you might become a victim of your own success, as is true with both of the cases above. Also, why are you running the campaign? If it is simply to raise awareness of your brand, then you need to set a limit on how much you are willing to pay for that exposure.
If you are doing it to attract people into your store or onto your website, you need to create an attractive environment once people arrive (bricks and mortar or web), so that you can persuade them to spend more than the original deal and also to give them a satisfying experience doing business with you that makes them want to return.
If you are running a bricks and mortar deal, you also need to consider how you will cope with dealing with the administration for what could amount to hundreds or even thousands of coupons. Having a system in place to ensure that people do not endeavour to misuse the coupons is imperative.
When considering coupons and discount vouchers, consider the results you are trying to achieve, aim closer to a 10% discount than 75% (unless you are in the business of going out of business), and consider the potential of success – will it break you?