Are you familiar with Groupon?

If not, here's the short description: Groupon is a deal-a-day website that is localized to individual markets. Each day a new "Groupon" comes out specific to a location. If a certain number of consumers sign up for the deal, then it becomes available to everyone. If the minimum isn't met, no one gets the deal. Groupons are typically very steep discounts on things like food, spa services, etc. Groupon has gained national visibility for both its business model and the impact it can have on small local businesses.

In the last few days there has been quite an online uproar over one small business who has shared its Groupon experience via their blog. You can read the blog post from Posies Cafe here.

In a nutshell, this coffee shop ran a Groupon in their local market (Portland) offering $13 worth of merchandise for $6. Over 1000 were sold, with a 6-month expiration date. The overwhelming response, and lack of planning by Posies, resulted in a very negative impact on its business. They were pretty much running themselves out of business by offering such a significant discount.

This blog post is not intended to be negative toward either Groupon or Posies—I think they're both very good businesses. Instead, I want to call out an issue that we see time and again with businesses running local advertising (both offline and online). That is, a lack of strategic planning.

Couponing in general, and Groupon specifically, are excellent methods to drive trials of your products. However, without the up-front planning and thought, these methods can quickly backfire for any local store marketing strategy.

Key things to think about when considering a couponing strategy are:

• Can I afford the discount I'm providing? What will be the possible net impact to my business if the coupon is widely accepted/used?
• Do I have an upsell strategy? In the Posies case, I have to think they would have been much better off offering the Groupon on more of an "ancillary" product, instead of their core product. They could have offered it for a 1 lb bag of coffee beans for instance, in which case they would expect a large majority of the customers that came in for the special to also buy (at full price) coffee and/or food.
• What is the potential negative impact? While striving to attract new customers, you always have to consider the possibility of negatively impacting current, loyal customers.
• Does this fit with my long-term strategy?

Overall, it becomes very difficult to assess the value of Groupon (or any coupon) without understanding how it fits in your broad marketing strategy. It's critical that any small business have a long-term plan how they're going to grow their business. It's critical to look at Groupon or any media options as simply a tool to help you achieve your broader goals. In this case, it appears that Posies fell in to the trap that we see all the time—they were "sold" a marketing option instead of them strategically buying what made sense.

Balihoo provides local marketing automation software to national brands that use local outlets to drive demand. However, our marketing software tools are irrelevant without a strong marketing strategy to back them up. Balihoo has a complete service team on the back end that helps local businesses develop this strategy, and this is a key differentiator for us. We go well beyond local marketing software. We actually help local businesses be successful.

Want to know more? Schedule a time with Phil, our sales consultant, and he can show you how to enable your local affiliates to market efficiently, and effectively to best drive demand for your product through strategy development to marketing tools to metrics, and reporting.