Recently a buddy of mine forwarded me an article on a large tech / info site about the social media coupon site Groupon.

Groupon basically works like this – Groupon has built up a huge email list by geographic location. Small businesses partner with Groupon to offer a discount on their goods/services. Groupon then emails their list with the discount promotion. People purchase, printout the ‘groupon’, then have something like six months to redeem it at the establishment.

I’ve never actually used Groupon, but have looked at it some as a few folks I know were looking at it as a potential marketing outlet, as well as other peeps of mine simply purchase the Groupon discounts.

You’ll see Groupons for almost anything, but it seems like it’s mostly for local restaurants, bakeries, coffee shops, etc.

Most people think Groupon is great, and I know it’s email subscriber list is friggin’ huge. And they’ve got more locations than you can shake a stick at.

Now, the article my buddy forwarded me was all about how Groupon isn’t all it’s cracked up to be, can cost a small business money, etc. They went on to link a blog post where some yuppy-fied bakery in Oregon used Groupon, and ended up losing their shirts on the deal…to the tune of eight grand.

You mean they ran an over 50% off sale (if you spent $6, you got $13 worth of product)…split the revenue of the sale (the bakery got 50% and Groupon got 50% of the $6)…and you guys lost a bunch of cash?

No kidding? Who’d have thunk it?

rolls eyes

Don’t get me wrong – I’m not pro-Groupon or anything like that. Like I said, when it comes to Groupon, I don’t really have a horse in the race. I could see how it could work well for the seller, and I could see how it could give them the shaft. Either way, it’s generally good for the buyer, so that’s a plus, I guess.

But here’s the thing – as a business owner, don’t you think it’s your job to do just a little bit of due diligence?

When looking at doing this, did they ever take into account the worst-case scenario? Of course you’re gonna lose money on the front-end – you always do when you run a sale. (Or at the very least, you lose potential profit made per transaction – depends on the nature of the sale.)

But that’s not why you run a sale, now is it?

You run a sale to get more bodies in the door. To get your name out to a larger audience and broaden your customer base. (Or, in IM terms – to grow your list.) In the case of a brick-and-mortar business like this, you hope to get them in the door so that they’ll use their discount and buy extra stuff while they’re there. Then, if you’re any good at what you do, you give the customer such a great experience (between the deal, the product, the value, the whole shooting match) that they come back again. And again. And again.

Let’s look at it in terms of internet marketing. What does any decent internet marketer do to build a list – gives away something of value for free. That marketer had to either spend time, effort, and energy to create that freebie, or pay somebody else to make it. Either way, they’re starting out in the hole.

Then, the marketer has to spend more time, effort, and energy driving traffic via articles, blog comments, social bookmarking, or any one of a zillion other traffic-driving techniques to the opt-in…and that’s just to get people on the list. We’re not even to the point of trying to make a sale.

At this point, you have to have an auto-responder campaign to build trust and respect (a relationship) – more time, effort, and energy. Then you eventually have to have a pitch you have to write, test, and tweak.

This is all before you make any coin whatsoever.

And if you went a paid route – say PPC traffic, or paying somebody to do SEO, or create your content, or whatever…this is all cash outta your pocket LONG before you ever make a single dime.

Yet internet marketers do this every single day. Why?

Well, honestly, it’s because some are stupid and don’t know any better. They’re chasing the ‘work at home’ / ‘passive income’ dream…only to be sorely mistaken later on. (Hey man – sucks to hear, but you know me…brutally honest.)

Most of us have a dead set plan of action in place. We’ve researched the market. Figured out there is a need, and want to fill that need. We’ve determined there is definite commercial intent, that the potential customers have money to spend, and we can offer them junk to spend their money on.

In other words, it’s worth it to us to put in the sweat equity and cashola up-front, because we know the payoff on down the road is gonna be worth it…and then some. At the very worst, we know (if we’re worth a damn as a marketer) that if we were dead wrong – which I have been before, LOL – and we don’t make nearly as much as we thought we would, that worst case scenario happens and we get zilch, that while it would suck big-time, it would be a loss we could take in stride and keep right on truckin’.

Back to the yuppy bakery and Groupon.

Now, I’m sorry they lost their $8k, had to go into their savings, and dealt with a bunch of rude assholes (the article said they did…but then again, that’s the retail business for you…). But I can’t help but think that some basic market research coulda saved them all this.

Ok so you serve fancy scones for $8 a pop. (NOTE – I don’t know if they do or not…that’s just me being a sarcastic jerk there…LOL Does the market you’re in want to drop eight bucks on an over glorified biscuit? Sure…some of it does. But how much of it?

And how much of that market would buy that same over glorified biscuit for $3 or $4? Likely a lot more. Can you still turn a profit from selling them for $3-4?

That’s the kinda analysis you gotta do before any kinda sale or promotion. You know how many people (your current customer base) that wants to buy scones at $8/each. How many more can you bring in at $3-4/each, how many can you afford to sell at that price before it kills you, and how many of those additional sales can you turn into repeat buyers?

(Now, the way the article read, it didn’t sound like they’d even given it enough time to determine how many of the additional customers turned into repeat/loyal buyers.)

And I can’t help but think that if you’ve been in business for any decent length of time, and there’s been no outside major changes (shift in the local/national economy, supply price changes, labor issues, etc), then there’s a good chance you’re satisfying the local need at your given price points…unless you’re somehow managing to fly totally under the radar.

So unless you think that there’s enough of the local market that have no clue who you are AND want to buy what you’re selling (for what you wanna charge for it), does a massive sale like that make sense in the first place?

I don’t think so.

Look at it like this – if you discovered a niche where very few people bought stuff, and the info-products currently selling well in the market were going for $17, would you drop $500 on a badass website, $2000 on an SEO campaign, and another $3000 on PPC to try and market a product for $77?

Probably not. Why? Because the whole thing would tank, and you couldn’t afford to lose that much money in a market experiment.

Well, if you can’t afford to lose that much money in the first place – given the whole thing does tank – should you even try it in the first place?