Groupon at a Bookstore

April 20, 2011
Jonathon Welch
New Atlantic Independent Booksellers Association

When I first planned on writing about Groupon, I thought I'd share a great idea to open your store to more customers. 

Groupon is a great idea for Groupon and its founders and investors.  I suspect others had the idea, and there are now plenty of emulators, but the Groupon people seem to have nailed it most effectively. Groupon gets half the money for each Groupon it sells, whether or not any get used.  In addition, they get all the data they can mine from the millions of "consumers" who sign up.  More fuel for the algorithms to market even more efficiently, and, they trust, effectively.  Their infrastructure and labor costs are undoubtedly quite low.  It's like they are printing money.

Groupon can be pretty good idea for the individual consumer, if he or she doesn't mind being mined (and it seems most of us don't, these days) and who can complain too loudly about getting deals of 1/2 price or better on things you know you were going to buy anyway.  The caveat is that one has to be a careful, savvy, smart, controlled, and restrained shopper--it only really makes sense if all you buy are Groupons for things you know you'll use.  The deals happen fast and have a brief time during which one can make a purchase, so it's easy to overspend.  Most Groupons also have a time limit, so one must remember to use them before they expire.  The issues that cause many consumers to overextend themselves with credit cards are very much at play here. 

The third leg of the Groupon triad, the business offering the Groupon, is the one that stands to benefit least, and the benefit is the hardest to measure.  The way the system works, the business signs up to offer a Groupon, say giving customers $20 worth of merchandise for a $10 Groupon.  Groupon collects the $10 from its interested members, and keeps $5, giving the other $5 to the business. (Groupon gives the business its share of every coupon sold, and pays out in three installments--a third within a couple days of the offer's closing, another 1/3 in 30 days, the final third in 60 days.) So the business is handing over $20 to the customer in return for $5, losing $15 on every $20 sale.  The business hope is that it will gain a significant number of new customers, who will spend more than the $20 coupon, and that these customers will become repeat customers. Perhaps the Groupon will also reclaim some customers who have strayed   Nothing is guaranteed.  If the redemption rate of the Groupon is high, and if the average sale is about twice the face value of the coupon, most bookstores can at least break even on the cost (retailers with greater margins will break even with lower individual sales than bookstores, no doubt). 

We ran a Groupon about a week before Christmas, to test the waters.  We thought it might be a good time because it was gift buying season.  We got a respectable sale of about 725 Groupons, many more than we expected.  In the two months after the promotion, about a third of them have been redeemed, the largest number for between $20 and $30.  The Groupon is good for 6 months, so we expect many more will be redeemed before the middle of June, but we don't know how many.  Groupon tells me they usually see a 90% redemption rate, but I have no idea if that's true.  It seems high to me. We get the $5 for every unredeemed coupon, which helps reduce the cost of the redeemed ones, but the net cost to us only becomes clear after the 6 months are up.

We didn't know what to expect, so were pleasantly surprised by the number of people who purchased our Groupon.  We were even more surprised to learn how many of our regular customers participate in Groupon.  We've discovered that a lot of our customers are on-line shoppers, something we didn't really have an idea about.  As we move towards a more active social media and online presence, that's very useful information.  The downside is that we have found very few new customers through this offer.  The majority of purchasers are people who are familiar with us and already customers of ours.  For them the Groupon is effectively a gift from us.  We don't get any information about purchasers except their names, so we can only mine the customers if they give us more information when they come to redeem the Groupon.

I suspect many Groupon users are "consumers," shoppers just out for good deals and nothing more. A store like ours doesn't thrive or necessarily even survive with a cadre of consumers; we require customers, individuals with whom we have long term relationships, whose interest is not necessarily, and not only, the best deal. 

For the business the Groupon cost is a marketing expense, similar to running an ad.  Its advantage as an ad is that it has a strong, self selecting target--presumably only people interested in books are going to purchase a Groupon from a book store.  Each store is going to have to judge for itself whether the final cost is worth it or not.  A business with a very successful Groupon--many new customers, purchases much higher than the Groupon amount--could actually make some money with this effort.  I have my doubts if that will be true for most of us.

One other comment about this:  I'm not sure Groupon plays well with the whole shop local idea, despite the fact that the bulk of businesses are probably local entities.  Fully half of the coupon price is immediately sent out of town.  More significantly, I think a world full of "consumers" always driven for the best deal, the cheapest price, is not a world in the long run favorable to local stores, whose health is contingent on a loyal base of customers committed to their expertise, knowledge, charm, atmosphere, etc--to a relationship.  I thought when discounting began in a serious way in the book business that the end result would be a serious devaluation of the book--and I think history has borne that out.  I fear that participation in the various ways the retail economy drives us to push down prices, to de-legitimize the costs we have of doing business, will in the long run have a similar effect of downgrading all the positive attributes we tout about why shopping local is important.  If everything is about money--and however Groupon's playful descriptions and "shopping is cool" attitude make it seem like it's about something else, that is what it is about--we local, independent businesses are not likely to win.  Because we are not, and can not, and should not be, about money and money alone.  Rampant consumption is bad for those of us who try to run a business in a sustainable manner--it works against community building and community stability.