Surviving a Groupon: Three Things You Should Know

Once the "go to" place for online group deals, Groupon has been losing its luster with its target market: businesses. And with Facebook Deals now offering a group version in its menu of offerings, Groupon might have to fight harder to retain its position at the top of the online group deal heap.

Nicole Tongson, owner of the Chicago-based customer-designed shoe company Eidia Lush LLC., has mixed feelings about her recent venture into Groupon territory.

Tongson signed her company up for a Groupon promotion in three different cities over 24 hours. The deal was $60 for $120 custom-designed Eidia Lush shoes, running in Boston, Washington, D.C., and New York City. Expecting to sell about 50 Groupons, Eidia Lush sold over 500 (including to me). Traffic to the website has increased dramatically since the promotion (45,000 hits that weekend compared to about 5,000 over the six months prior, and site traffic remains high), and viewers are now spread across not just the U.S. but world wide.

But Tongson's team was ill-prepared to cater to the onslaught of orders; thus the company lost out on potential repeat business as some customers were turned off by how long it took to fulfill their orders and didn't experience what Tongson calls their "usual top-notch process." Here's what you can learn from her experience if you're considering offering social media-based group deals to attract new customers:

1. If you're looking to group deals for instant profit: don't.
"We are paying out-of-pocket for every Groupon purchase. Many small businesses don't realize how the payments and prices are structured. You give at least half off the price of your product or service to the consumers. Groupon then takes half of what's left. So you are really only left with a quarter of the actual retail sale," says Tongson.

Tongson is in a financial position to be able to cover this loss. However, not all small businesses are.

What you should do: Weigh the pros and cons of marketing to a mass audience when you're starting out. "For us, it was a risk worth taking because we believed that our concept is so unique, that the resulting word-of-mouth would make up for the Groupon loss in real sales," says Tongson.

2. Make sure you get noticed before your deal runs.
Tongson says of Groupon: "They don't tell you when your deal will run. It could be tomorrow, or in a year. This is nerve-racking. About four weeks after we signed our contract, we heard our deal would run in Boston and New York two days later. We then got a call a few days after those deals were done, saying we were running in Washington, D.C., the following morning.

"A couple of days later, we were told we'd be running in Chicago the following day. After being overwhelmed by our previous deals, we decided not to proceed for fear that we simply would not be able to handle the demand from our hometown."

What you should do: Request upfront (or have them put in your contract, suggests Tongson), that you get at least a week's notice before running your deal. Also, create a business plan for the set amount of orders that could possibly sell. When your 24-hour deal is over, you can get to work on following through with the associated plan.

3. Be prepared to put everyone to work on customer service, because it's the best form of public relations.
Before the Groupon deal, Tongson handled all customer inquiries herself. "It's very important that people feel completely comfortable dealing with us, since we're new and believe that amazing customer service can make even the worst situation better," she says. "After having to answer 50-100 emails a day for the first month after the deal, I finally was able to hire and train someone to help handle them."

Customer service is crucial in turning your customers into evangelists; while considered a different discipline than public relations, social media has made customer service a critical touch point in any organization's connection with its customers.

"It's hard to believe that a small salon or restaurant that's servicing 1,000-5,000 clients extra in six months can hold up to the same standards of customer service as they did prior to running the promotion," Tongson says.

What you should do: Prepare for a group deal just as you would for a potential crisis situation. If you're overwhelmed by orders, it might indeed turn out to be a crisis of reputation for your business. Train your employees on how to answer inquiries, be upfront about the difficulties you're facing, and give them regular updates on when they can expect to see their orders fulfilled. A satisfied customer is much more likely to give you repeat business -- and help spread the word -- than an unsatisfied customer is.

Though Tongson would not run another Groupon promotion in the future, she is grateful for the push it gave Eidia Lush to get off the ground. "It has been a challenging, stressful, and exciting six months that allowed us to grow at a pace that otherwise would not have been possible. The things we've learned are priceless," she says.

Eidia Lush shoe image © Eidia Lush and used with permission
Shonali Burke is Principal of Shonali Burke Consulting where she helps turn businesses' communication conundrums into community cool. She opines on PR and social media at Waxing UnLyrical and is considered one of 25 women that rock social media.