Groupon vs Direct Mail

For the benefit of those that don’t know, a Groupon is a “deal-of-the-day” recommendation website for consumers. Every day, Groupon LTD broadcasts an electronic voucher (via email, social media, etc) for the benefit of a restaurant or shop, recommending that service while also offering consumers a 40-60% discount if they invest in that service. It’s seen by many as an alternative to Direct Mail, as it means you don’t have to manually send out hundreds of vouchers to your customers, instead your customers go online and print off their own voucher.

Many business owners see this as an enticing alternative to Direct Mail Marketing, which is why they tend to ask – “Why should I offer a discount on my Direct Mail piece when I could do that for free through a service like Groupon?

The short answer is; it is all about whom you are getting to respond to that offer. But the short answer doesn’t really provide us with a full picture in regards to the difference between the two, which is why we must consider the Long Answer, and for that we need a hypothetical situation…

The Situation:

You are a fine dining restaurant and the majority of your customers are within 10 miles of your restaurant and earn over £100k a year. You charge £100 for dinner for two.

Marketing Option 1:

You do a Groupon offering 50% off dinner for two. The Groupon is sold for £50 you take home £25, while Groupon keeps the other £25.

Lets say you sell 100 “Groupons”, 40 are sold to people located within 10 miles of your restaurant, and. 15 of those make over £100k per year, however 5 of those were already regular customers meaning only 10 of the 100 customers you sold a discounted meal, to are actually in your ideal target market.

Your initial revenue from the promotion is £25 per Groupon. For 100 Groupons, this comes to £2,500. If 7 of those 10 newly qualified customers become regular customers and come back 3 more times per year, you will make an additional £2,100 per year in revenue.

Total revenue from the campaign is £4,600 for 121 dinners for two. This equals £38 per dinner for two.

Marketing Option 2:

You send a Direct Mail piece offering 50% off dinner for two. You target only those within 10 miles of your restaurant who earn over £100k per year. With control of your own data, you are able to exclude any current customers from the list – The next day 100 people come in and redeem the voucher they got through the post. They are all qualified to become regular returning customers and none are existing customers. Your initial revenue is £50 per redemption, and 100 people redeem the coupon, equalling £5,000. There is no commission to Groupon, so you keep all revenue.

70 of them (the same percentage as in the Groupon option) become regular repeat customers and come back 3X per year spending £300 per year. This equals another £21,000 per year in revenue.

Total revenue from campaign is £26,000 for 320 dinners, which equals £81.25 per dinner for two.

So, yes, the Direct Mail campaign had an up front cost. But does that cost justify choosing a £4,600 ROI over a £26,000 ROI?

In year one alone you can see the stark difference. Once you start looking at how that plays out in future years in terms of those new customers coming back time and time again, the revenue difference continues to grow exponentially.

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