Income School Blog

How I Used Groupon to Build a Brand

How many ways can you think of to get brand recognition?

How can you make your business the one that people think of when they want whatever it is you offer.

When I graduated with my bachelor’s degree, I moved out to a beautiful place in Southwestern Virginia.  It was a quiet, tranquil county and I had a good job.  Even so, I decided that it was high time I get my hands dirty starting a real business.  So I teamed up with two friends at work to start a business.  One of these days I’ll go through the rest of that story, but suffice it to say that our meager, little business started off with no brand recognition.

Our business was a locally-based paintball rental company.  So we only needed to reach the surrounding counties.  Anything beyond that would have been a complete waste of time and money.  So we spent the first several months renting to friends, connecting with the local University’s paintball club, spreading the word through their Facebook page, etc.  It was all the hustle kind of stuff you do when your business in brand new and doesn’t have any money.

We built a decent website and a Google place that pointed local people to our website when they searched for paintball in the area.  That was a great help, but it didn’t get our brand in front of people unless they were specifically looking for paintball.

But it didn’t take very long before we realized we needed to jumpstart our brand awareness.  People needed to know who we were.

It was around this time that we were approached by a local news station that put on daily deals, just like Groupon and Living Social.  They offered to run a daily deal for us, and the catch was that we had to sell rental vouchers at a discount, and the news station got to keep 50% of the revenue.

At this point we were okay with that, as long as it would make people aware of us.  So we did it.

This deal ran shortly before Christmas and got us a decent number of new customers.  Of the people that bought, I think about 80% actually used their vouchers.  Of them, only a handful became repeat customers.  But it’s likely that every repeat sale we got from this deal wouldn’t have happened if these people hadn’t found us through the daily deal.

After this deal ran, we got to thinking, “Maybe if we ran a similar deal through Groupon, we’d get more people.  After all, Groupon has a bigger audience.”  So we did it.  Here’s how the deal worked.

  • Groupon required that we offer rental vouchers at a discount of at least 50% off of regular price.
  • Groupon got to keep 50% of the revenue from the deal.
  • We got paid our portion of the revenue up front (I think it was in two payments, one a month after the other).

We decided that rather than selling a voucher for one rental at 50% off, we would sell a voucher for two rentals for the price of one.  It’s the same price, but it ensured that two people would come on every voucher, which meant more customers.

We ran the deal and it was really successful.  We were told going in that only about 80% of vouchers are ever used.  In our case, that number was only about 50%.

Here’s what the deal did for us

  • It immediately increased our customer base by at least 10% (we really were starting off with a very small base)
  • It paid us the money up front, giving us the cash to purchase equipment and supplies in bulk prior to the busy season
  • It made us some money since buying in bulk allowed us to be profitable even at the discounted prices
  • It jumpstarted our growth through word-of-mouth
    • The majority of our customers from that point on found out about us from someone who had rented from us and given a glowing review

Here’s why it worked for us

  • Our profit margins were high enough to make a profit, even at drastically discounted prices
  • Our niche was in providing low-cost opportunities for amateurs to play paintball—many people on Groupon are looking for a deal, so it’s ideal for niches that are targeting the type of people that usually want a good deal

So here’s my recommendation.  Go ahead and use sites like Groupon and Living Social if any of the following conditions are true.

  • Your business will benefit from getting your product in front of a lot of people in a very short period of time
  • Your profit margins are at least 75% when you sell your product at full price—this will allow you to at least break even on each sale
  • If you don’t have such high margins, you can still use this option but write-off the loss on these sales as a marketing expense, and run the numbers so you’ll be confident that the benefit from the promotion will be more than enough to justify the loss on the voucher sales

For our business, the local daily deal and the Groupon promotion made a very positive impact on our brand recognition.  But before you go setting up a deal through one of these websites, make sure that you can actually reach your target market through these sites.  Make some assumptions and run the numbers so you can be confident that the benefits will outweigh the costs, especially if you’re going to take a loss on the voucher sales.

That’s what we did in our business, and it worked for us.

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