Thinking about harnessing the power of the social media darling, Groupon, to benefit your veterinary practice? What could possibly go wrong? Nothing according to this article , however I’m not buying it.
I’m not disputing that the two practices mentioned in the article have probably achieved their goals for their promotion, and I’m sure they have figured the actual costs to their brand and revenue, and considered it a good trade. I am, however, disputing that Groupon – and discounting in general – is a good business model.
Ignoring that the champion of discounting, despite spectacular revenues, makes no profits and is considered by some to be bordering on insolvent, let’s take a look at what is in it for the veterinarian or any other small service business.
Study after study (look here if you don’t believe me), have always come back with price being near the bottom of clients reason for visiting or staying with a veterinary practice.
But lets for a moment ignore that and assume that price is the single driving force that gets people in the door, how do you pay for all the new traffic? Lets say I offer $10 exams instead of my normal $50 exams and I can see 20 patients in a day. If I max out the schedule on $10 exams I make $200 – that’s four regular priced exams. I can set my staff to be calling over due appointments or even just send them home and have an easy quiet but at least profitable day.
But perhaps we can make it up in additional services that the patients will receive when they come in. Three times your normal exam fee is a pretty good average client transaction but you’ve discounted and attracted discount clients so lets be generous and say they spend half or what you would normally spend
My four regular priced exams bring in a total of $600
My twenty $10 exams bring in $1,200! Sounds great.
Except it is all at a loss.
Lets say I have a gross margin of 50% at regular prices (50% of $600 = $300)
But with my low cost exam I have to recoup the discount out of my additional earnings.
50% of $50 (regular exam fee) = $25
$25 x 20 (max visits a day) = $500
20 x $10 (exam income) = $200
Exam Discount Deficit = $300
50% of additional income from exams = $500
Gross margin = $200
I could have kept my costs low, or retasked my staff, instead I chose to make busy work and I made $100 less.
Groupon’s standard model is at least 50% off with 50% of the cost of the Groupon (25% of your normal priced service) that the client actually pays going to business and the rest going to Groupon itself. You have no control over when your Groupon is going to be posted and so it could come at your busiest time of year. Finally, if you can attract clients with a Groupon SO CAN ANYONE ELSE! Where is the loyalty building? What happens to your regular clients? What are they going to think about you giving massive discounts after their years of loyal custom?
Now, there are a lot of assumptions here, but the main point of all this is you follow the discount path it has to be with the numbers to back it up. Discounting DOES impact the perception of your business. Companies who spend millions on brand perception still have their businesses affected by their pricing and discount policies – Think Starbucks vs. McDonald’s coffee. Think Trader Joe’s vs. Wholefoods. Think Wal-Mart vs. Target. Think Kia vs. Audi.
Groupon is the ultimate discounter and there are horror stories galore about what happens when you deep discount without calculating the real cost, both to your brand and to your bottom line – and particularly with small businesses. Companies that base their business model on discounting know where every penny comes in and where every penny goes out – at all times.
Proper marketing, engage your clients, build your brand, and offer superior service for a fair price in the name of the game. Discounting is a really good way to give money away.
This post is based, in large part, on a post I made as a response to a Group Question on LinkedIn group. My thanks to Firstline Magazine for spiking my interest in this subject, yet again.