Entrepreneurs’ willingness to jump on the couponing bandwagon has fueled tremendous growth for daily-deal companies like Groupon and Living Social. The contagion has even spread to non-traditional couponing businesses like The New York Times and Facebook. While it may seem like every local business is out to entice customers through daily deals, there are some entrepreneurs taking a stand against couponing.
Continue Reading Below
“The sales spike from couponing is like a one-night stand,” said Hans Hess, founder of Elevation Burger. "You get something really quick and it’s enjoyable for a little while, but it doesn’t give you the basis for a long-term relationship."
Hess didn’t like the idea of couponing, but when franchisees approached him about offering a coupon through a daily deal site he allowed them to test the concept at five locations over a number of months.
“We tried it and realized it was not a way to build relationships with guests,” recalled Hess, “Our theory is that the kind of person buying the coupon is just looking for a deal and they are content just going deal to deal to deal.”
Hess allows new franchisees looking to draw a crowd to offer one daily deal. But they can’t repeat it and it must be done within the first two months of business.
Tom Kelley, managing partner at Concept Branding Group, warned that couponing can cheapen a brand in consumers’ eyes. “We discourage clients from doing it,” said Kelley, “There are more efficient ways to market than shotgun couponing.” He suggests businesses try building community alliances and working with community organizations to help attract customers.
Continue Reading Below
Consumer psychology toward couponing can also impact price perception. Marketing consultant Michael Zipursky said coupons can be dangerous because people will associate the business with the discounted price. “Say you offer a product or service for $50 that is usually $100, people will perceive the value of that product or service at the lower price.”
An expectation of discounting among coupon-addicted consumers can also have a negative effect on consumers. Stephen Hinkis, vice president of franchise operations at Newk’s Express Café (Newkscafe.com), was approach by several daily coupon sites and turned them down. “The problem with couponing from our experience is you can’t wane your customers off of couponing and if you remove the coupon you have to do damage control,” Hinkis said.
The boom in customers a deal creates could put entrepreneurs at risk of losing future customers after the deal is over. Pierre Panos, founder of Fresh to Order, warned that most business owners get slammed when the coupon takes effect.
“They don’t know how to handle the volume and they lose far more than they would have gained,” said Panos, “If the experience is bad, because they did not execute it well, then the customer will tell potential full-paying guests not to go there.”
For entrepreneurs willing to bite the coupon bullet, Zipursky recommended they “think about the effect that the coupon will have on the business, how much a customer is worth and how much they are willing to spend to get that customer?”