Who wants to pay full-price for anything? Not I.

So I “lit up” when social buying sites like Groupon and Living Social started cropping up. They round up deep discount offers from all kinds of businesses and present them to millions of potential customers.

That “millions” is misleading. Groupon, for instance, has about 60 million consumers signed up but that’s nationally. The offers (and the businesses that make them through the social buying sites) are mostly local: restaurants, spas, etc. I received three offers: 50% off Asian Fare at Soo Woo, 60% off at Women’s Film & Art Festival and 70% off Botox (Ouch!).

I’ll give you my e-mail, but not much more!

Consumers start by logging onto a social buying site which, somehow, knows roughly where you are. In my case, that’s Miami. You’re asked to confirm that, then they ask for your email address and age. No big deal. Then up pops up another screen that asks for more information: name, address, etc. This is a little off-putting for some of the people I’ve talked to.

I found the geography a little odd at times. Today’s deal of the day at Groupon is for a business clear across town. If you’ve ever driven in Miami, you know that it might as well be in another country.

Don’t Jump on the bandwagon, yet!

Nonetheless, small businesses seem to find social buying sites to be dream marketing tools. They pay no initial set-up fees and commissions are negotiable.

Groupon handles all of your purchases through their website and they’re very involved in making sure their clients are successful. If you’re not successful then they’re not successful.

Of course there are potential downfalls. If you run, say, a mom and pop ice-cream shop that regularly serves 40 or 50 people a day, what would you do if 500 people showed up?

How can i lose? Profits are slimmer?

And, in a recent survey, 32% of business owners lost money running these types of promotions.

Open bar…we’ll lose our shirts!

I’m not sure how the survey was conducted and I’m never sure how companies calculate “loss”. One of my favorite examples of this problem comes from a friend who ran a bar in a ski area up north. Business was fine in winter when people were skiing but a little slow in the summer and shoulder seasons. So my friend suggested to his partner that they send a letter to all the adults for miles around inviting them to a party with a free open bar from 7 to 9 on a Friday night. “Are you nuts? We’ll lose a fortune,” screamed the partner. My friend ran the math and finally convinced his partner. And they did lose money from 7 to 9. But in the next six hours they had their best night ever! And for the rest of that off-season, they had one profitable night after another. The math worked.

Will I ever make my full price again?

I think that’s the same kind of math that makes the deep discounts on social buying sites a good idea. In a way, it sounds like the Marketing Allowable from Direct Marketing 101, but you have to run your own numbers before you get involved. And you have to consider things like:

- Will discounting your product or service damage the integrity of your prices? Will people just wait for your next coupon and not bother to pay full price?
- What is the potential Lifetime Value (LTV) of customers who come in for special offers?
- Are they “opportunity seekers” and not repeat customers?

You also have to think about your current customers. Will a loyal customer paying the regular price get irritated when newcomers pay half that? Maybe and maybe alienating your current customer base isn’t worth it.

It can also become an issue when businesses don’t treat social site buyers as well as they treat their regulars.

Maybe I’ll go to your cafe this week.

Just the other day, I bought a Groupon for a local restaurant. When I showed the hostess my Groupon, she (and the rest of the staff) made my guest and me feel out of place in every way imaginable. I’m not going back.

For some businesses like salons, spas, restaurants and recreational activities, social buying can be great idea. But what about other businesses like lawyers, accountants, advertising agencies, realtors and other services?

What do you think of this social buying phenomenon? I’d love to hear from you. Please comment below.