The discount deal site Groupon is the latest online marketing tool to receive a Facebook-style colossal valuation, and its very high level of consumer awareness is leading many smaller businesses to wonder whether they should get involved.

If you’re not familiar with the Groupon model, here’s a short video covering the basics.

Essentially though, Groupon offers discounted deals to consumers, offering businesses access to a very successful channel to market – at a cost, which is that the offering must be substantially discounted and a good proportion of that selling price will be retained by Groupon themselves. The model is spreading fast, with other sites like and numerous locally focused smaller competitors appearing over the last few months.

It’s obvious why it’s so popular with consumers – you genuinely do get some excellent discounts. However, you should think carefully before signing your business up – and here’s why.

What kind of customers do you want?

Social discount sites provide fantastic access to a large consumer base who are hungry for deals. Because of that, it can be highly effective when you’re looking to build visibility and awareness of your business. But, remember that consumers using the site are specifically there for the discounts – they may not have any longer term interest in what your business offers.

To put it another way, if you’re offering premium quality spa services and your usual rate is £60 for an hour’s massage, and you offer it on Groupon at £20, who will you attract? Discerning customers who are prepared to pay for your value add, or those seeking a quick bargain?

A good investment to grow a business?

In order to offer the level of discount required, and pay the operator’s cut, many businesses find that the deals become a “loss leader” -they make little or no profit on that initial sale.  It’s essentially an investment based on the predicted lifetime value of gaining a new customer.

And that’s fine,  so long as there IS a lifetime value for that customer, ie they are realistically likely to keep coming back to you and are happy to pay standard rates for your product or service. If not, all you’ve done is become a “busy fool”, offering great services or products with no profit to you or long term benefit to your business.

Don’t rain on your existing parade

We’ve all heard people complaining about companies treating their existing customers as second class citizens, right? It’s not logical, given that we all know how much more valuable an existing, loyal customer is than a theoretical new one, but there are plenty of examples out there – from mortgages to mobile phone contracts – of businesses apparently disregarding the feelings of their customer base. Well, social discount sites are a great opportunity to do this, too.

How will your loyal customers feel if they find themselves (literally or virtually) alongside a new customer who’s paying half as much for the same service? At a stroke, you’ve just destroyed both your customer’s loyalty, and their perception of the value of what you offer.

Conversion is key

We’re sure there will be scenarios where social discounting can be fantastic for a business.  For a new startup with little awareness and no existing customer base, for example, there’s a lot less to lose. Even then, though, you need to be confident that once they’ve experienced your product or service, they’ll be so smitten that they’ll be happy to return at full price in the future. Ideally, you need to find some way to encourage conversion of bargain hunters into loyal customers, and there are various strategies that can work well here.

Including Groupon as part of an overall social media strategy can help to increase its value, too. At no cost to them (or you), those loss leading customers could become excellent advocates for your brand, spreading the word and building your reputation and credibility. If you don’t know how to make this happen, you’re missing a significant chance to maximise the value of the social discounting process.

What do you think? Has a social discount site made  a significant difference to your business?