This time around, I’m going to address a question which my friend, Alice, asked me recently.
She had asked me for my opinion about group deals. You see, she is in the soap business. Her soaps are made with natural plant oils and are wonderful to use in the bath. I’ve bought a few from her before. But this is not your regular type of soap.
Price-wise, it costs a lot more than Lux or May or any of the commercial soaps in the supermarkets. At RM19.90 each bar, her specialty soaps are distributed to niche businesses such as spas, pharmacies and organic stores where the customers are willing to spend more for quality soap.
She asked if it was worth her while to offer a group deal since her business is just a few months old and she could really do with an influx of new customers. She wondered if offering her soaps at a highly discounted price would give people a chance to try her soaps. A friend of hers was using this type of group deal to promote her food products and Alice was tempted to try this method.
We had this conversation during a quiet lunch in a Thai restaurant in Pulau Tikus.
I told her, it really depends.
Can Group Deals Be Bad Business?
I’ve read about Jessie, a Portland coffeeshop owner’s personal story with Groupon when she signed up with them and get this, the deals caused her to lose money. Now how can something this good be so bad for the business?
Maybe I can explain it by using our business. In our business, we do not give discounts. We’ve never done so because we focus on giving value to the clients so much so that no one has ever come to us for a discount.
If you give a discount (with the assumption that you are providing a kickass service or product), you are just setting up an abnormal precedent where the customer will always start asking for discounts!
Without a discount, they won’t buy whatever you’re selling (unless it is something urgent and important). If you don’t give discounts, then will you lose out to your competition who does so? Yes but you are only losing the customers you really don’t want and giving your competition a damn fine headache.
Perhaps it is all right if her product is something new and price isn’t an issue later on (remember, this is soap that isn’t sold at regular prices). Soap isn’t exactly a must-have item – you can substitute with body wash or cheaper soaps.
Bargain Hunters Live For Bargains – Period.
Let’s just say Alice does a group coupon deal and decides to offer her RM19.90 soap at RM12. She will get a lot of people who will just buy her soaps just because they’re cheap and on offer and such a bargain.
Perhaps out of the entire bunch, a few will be truly enamoured but bargain-hunters function differently – they want everyday to be a deal day. If they can buy at a highly discounted rate, will they will buy it at the regular price?
I’ve polled some friends and they are of two groups. One group says they will patronize the business if the products or services are good. Group two says they won’t because price was the only reason they chose to patronize the business. They would keep an eye out for more discounts since they know they won’t need to pay regular prices.
The people you attract with a discount are generally people who will always ask for a discount, no matter what. I’m not the only one saying it – Redfin says it too:
“We’ve also learned that the customers you attract only with a discount will disregard what you love about your own business, and won’t treat you with respect; both sides usually regret the transaction…As the grandmother of our VP of engineering, Sasha Aickin, once said: When you buy something cheap and bad, the best you’re going to feel about it is when you buy it. When you buy something expensive and good, the worst you’re going to feel about it is when you buy it.”
I am keeping an eye over these group deals but personally, as a business owner, you have to play your cards right and not get burned by the deal!
But then again, are business owners just jumping on the fad or are they really out of ideas in promoting their small business?
I’d love to hear your take on group deals.
Are they worth it? Are you speaking from the perspective of a customer or a business owner? It should prove quite interesting!