The social coupon: a threat or an opportunity

I receive new offers every day of products and services at scandal prices. These companies offer everything from services such as restaurants, travel, spa or cooking classes to products such as clothing, footwear and even cars.

In this type of business, is involving three parties: the consumer, the social provider (who hangs the coupon on the web being Groupon the most important company in the sector) and the company that offers the service or the product.

In this post I would like to reflect on what the social coupon contributes to the consumer, the social provider and the company. Are the coupons profitable for the company? How can the company calculate the loss of benefits? How much time will the company need to compensate for this reduction in benefits? How can the company mitigate this reduction in benefits?

What is the social coupon?

The definition of “coupon” according to wordreference are “parts that are cut from an advertisement, invitation or bonus and that gives the right to take part in contests, raffles or to obtain a reduction in purchases”.

It is added “social” to differentiate it from the traditional coupon that is disseminated through the Internet, mainly via e-mail.

What do social coupons provide?

To the consumer, the social coupon provides a significant reduction in the prices of the products to be paid with discounts of between 50 to 90% and start in products that were unknown or out of reach by the consumer before the coupon.

To the social provider, the social coupon is a source of income. Companies like Groupon can charge up to 50% of the price of the coupon for offering the coupons on their website. Some revealing data on the power of the sector: Groupon and Living Social, the two largest suppliers of coupons in the United States were expected to reach 2.67 billion dollars in 2011, representing an increase of 138% compared to 2010 .

Advances in technology (such as the use of mobile applications or the sending of promotions by e-mail) and the economic crisis (reduction of income by families and reduction of consumption) have helped the development of this type of company.

For the social provider, the sale of the coupon is a profitable business since consumers pay for the online coupon before receiving the product or service contracted. The variable costs of social providers are usually covered even before the sale of the product.

For the company, the social coupon provides you with new customers. However, companies are reduced benefits associated with the sale of the coupon.

How does the company calculate the profitability of the sale of the social coupon?

Factors that the company has to take into account:

  • The benefits obtained by the new customers who use the coupons.
  • The benefits of customers of the company and that use the coupon.
  • The total benefits of customers of the company that do NOT use the coupon.
  • The payment to the social provider for offering the coupon on his website.

How many months does the company need to recover the reduction in profits associated with the sale of the coupon?

Most companies agree to the sale of the coupon to attract new customers and a percentage of them repeat. Drvkumar reports on how many months the company needs to recover the benefits reduction after the sale of the coupon.

How can companies negotiate with their social provider to increase their benefits?

The answer is given by V. Kumar and Bharath Rajan (2012):

  • Increasing the number of new customers who buy the social coupon.
  • Reducing the discount percentage offered to customers.
  • Reducing the percentage of customers of the company that receive the coupon.

Currently, social coupons represent an opportunity for consumers and social enterprises. However, they are a threat for companies that do not thoroughly study the viability of the business. The key, inform yourself before making a decision !!!