Sunday, September 26, 2010

Groupon and Mass Discounting Strategies

Spurred in part by an excellent article written by Chris Jones of the Chicago Tribune, in the past month, there has been a lot of talk about cultural organizations using Groupon (an online, mass discount website). Just like any mass discounting method, using Groupon should be a well thought out strategy. Used correctly, and it can work very well. Used incorrectly, and it can be very costly.

Things to remember about Groupon:
  • It is out there for the world to see and it was designed to be used by social media, so that it is picked up and passed along at a very rapid pace. From some of my previous posts on this blog, you probably know that I am a fan of what I call "ninja discounting." Very rarely do I use mass communication to advertise and promote discounts, preferring instead to use one-to-one direct marketing techniques aimed at very strategic recipients. If I need to discount, then I want to make sure that I can control who gets the discount so that it flies under the radar of full price buyers.

  • Groupon generally rewards a pattern of behavior that isn't desired--namely, last minute ticket purchasing. Before turning to a mass discounting strategy like Groupon, performing arts organizations will wait to see how their standard campaign is doing. If they are on goal, most won't discount. If they are off, time to throw out the offers. But this usually happens pretty late into a campaign. Let's use the Joffrey Ballet that Chris cites as an example. Their programming begins in October, as does Arena Stage's, so I would guess they launched their subscription campaign last spring. How do you think a subscriber who purchased early and at full price will feel when he sees that if he waited several months he could get a subscription at 50% off? and what do you think his purchasing behavior will look like next year? and trust me, he will get the offer because as my first point illustrates, it goes to everyone.

  • Groupon is a for-profit company, and operates like one. They take a significant cut of each sale made. Using the example from the Joffrey Ballet, subscriptions were offered at 61% off regular prices. However, the cut that the Joffrey gets is significantly less than that, so they most likely sold those subscriptions at 75-80% off. Larger organizations can negotiate better splits with Groupon than their smaller counterparts, but I haven't heard of anyone keeping more than 60% of the full sales price.

  • We must always remember that discount buyers behave differently and you must budget for that. Full season subscribers at most organizations renew at a rate between 85% to 90%. However, I have found that full season subscribers that purchase their subscriptions at a drastic discount renew at a much lower rate (around 60%). Additionally, because they spent significantly less amount of money per ticket, the no show rates are also substantially higher, sometimes leaving large empty holes in your house.

Instead of putting subscriptions on Groupon in order to attract thousands of new subscribers, I would do the following:

  1. Using your database, compile a list of the tough holdouts that you have hit up seven to eight times already during your subscription campaign (usually includes single ticket buyers and non-renewed subscribers from the past 3-4 years).

  2. Next, trade lists will all the other arts organizations in town.

  3. Then possibly consider purchasing lists from a list broker.

  4. Combine all the names into one master document, and suppress your current subscribers, donors and full price ticket buyers.

  5. Using the exact same deep discount offer you were going to give to Groupon, develop a cheap, but effective mailer and send to your list. Make sure it is an offer that is impossible to pass up, and that the offer leads in design and has a deadline. (note: if you don't have a large box office staff, then make sure the offer is online only, or you will be swamped). The key is to keep production and mailing costs low--send using non-profit postage and use a discount printer/mail house.

By doing this, you get to keep the entire purchase price of the discounted subscription, and you minimize the possibility that your dedicated and loyal patrons will see that you are heavily discounting late into your campaign after thousands have already purchased.

I find that Groupon is most useful when trying to fill large sections of an empty house on dates that are less desirable. Full price ticket buyers don't seem to mind because they didn't want those dates anyway, and most companies budget low percent paid capacities on those dates so it is additional revenue that wasn't anticipated.


AP said...

Interesting Post :)

Kara Larson said...

Yes, but...

I agree that there's no revenue reason to use GroupOn; they keep 50%+ of the half-price offered, and people who buy that cheaply are not going to come back as full-price subscribers. That said, I have happily used GO when I have excess inventory to get rid of. Rather than going through the same tired lists I've combed through before, I'd rather use GO to find a few of the bargain seekers who may comeback again for another event, as single ticket buyers.

I accept that no matter how good my marketing staff is, we can never reach everyone. There are plenty of people in any market who never see your marketing message. But some of them subscribe to GO. For that reason alone, it's a worthwhile way to be introduced to a new segment of audience. Our regular price sales spike, and web traffic goes way up, on days we're featured on GO.

And I worry not one whit about subscribers getting upset (of course, I'm moving single ticket inventory...). Subscribers are by their very nature planners-ahead, people who decide what they want to get it early. GroupOn'ers are people who wait until the last minute, who are spontaneous non-planners. An offer geared to one will simply not appeal to the other. And should patrons inquire, they are told the truth; that GO is getting the left-over seats that no one wanted.

Like everything else, GO is merely a tool--used the right way, strategically, it can help you. What it can't do is find a wide new audience that will suddenly decide that full price future tickets are what they really want.
Kara Larson
Carolina Performing Arts
Arts Knowledge, llc

Rachel C said...

Trading lists with other organizations is tough to do, and possibly unethical. Most organizations are protective of their mailing lists, and rightly so. I would consider it Spamming for the local ballet to get my information from the symphony. If I want to sign up for the ballet's list, they need to convince me to sign up - not steal my information from someone else.

Chad M. Bauman said...


Maybe you have had different experiences than me, but I have traded lists with other arts organizations throughout my career. In fact, there are very large community databased (mostly managed by Target Resource Group) designed specifically to make trading lists much easier.


Unknown said...

I agree with Rachel, Chad. If I'd given my information to another theater organization and started getting your spam, I guarantee both of you would get labeled spammers on Yelp and every other site I could reach.

Also, the strategy you describe is costly. Kara's right. Using Groupon may not be quite the free advertising they want you to believe they are, but their system draws no up-front costs. If used properly, it can increase your market.

MS said...

I am interested in finding out more about the list trades. I went to TRG but they don't cover NY where I work. Any ideas on someone who does a community database for NY?

Unknown said...

Interesting post! Groupon will either grow like crazy or drop down a few slots when the big dogs start to play. Groupon’s current $25 billion pricetag is flawed for a number of reasons according to Groupon Priced at $25 Billion!!