The upside and downside of online coupon sites

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by OWEN LEI / KING 5 News

KING5.com

Posted on November 20, 2010 at 11:23 AM

SEATTLE -- Online coupon sites continue to take off this year, and social media experts say their success should be tempered with a bit of caution.

Tell that to Krisha Catzen, who called her online coupon deal the "second best thing that's ever happened" to her business. She likes to describe her classes as "kind of like Fight Club for women."

Catzen usually keeps her studio tucked out of sight in order to help her students feel more at ease, but her online discount promotion has netted her more than 2,300 potential new students, she said.

You see, Catzen owns Pole for the Soul, one of Seattle's longest running pole dancing fitness classes.

"Work it, work it, work it," she yells at students in a bachelorette party. "That is the saddest stripper walk I have ever seen!"

Catzen's half-off deal was advertised on a website called LivingSocial.com.  It's how organizers of the bachelorette party found her.

"Oh, I use it religiously every day, it's tied up to my Facebook and Twitter," said Lesley Regoso, who was throwing the party for her soon-to-wed friend Hannah.  "A lot of the times, I pick the restaurants I know I'm definitely going to [eat at]."

Across the country, sites like Living Social, Groupon, Tippr, and DealPop are taking off by offering discounts on everything from home cleaning to cupcakes, spas to sightseeing tours.  In Seattle alone, hundreds of thousands of people have signed up to receive daily deal offers.

What makes the sites "social" are incentives offered for getting other people to sign up as well.  Some sites, like Groupon, have offers that don't activate until a certain number of people buy them.  Others, like Living Social, make their offers free if you get friends to buy in.

And it appears the sites are wildly successful.  Kevin Nakao with Seattle-based Dealpop tells KING 5 that in just four months of existence, they already have more than 10,000 members in Seattle alone.

"About half the people that sign up for the service actually buy something, and when somebody participates in this they tend to buy a new deal every four to five weeks," Nakao said.

"I think it's really the Wild West now for couponing sites," said social media expert Leigh Fatzinger, who owns Seattle-based Nology Media.

Fatzinger warns that unlike traditional newspaper of mailer coupons, a lot more people actually use the online coupons, often right off their smartphone.

"By having the coupon on your device, the take rate is going to be much higher, and so that needs to be factored into the total cost of the program," said Fatzinger.

Catzen said she tried traditional advertising.

"I've paid $100 for an ad that was supposedly being circulated to 20,000 people and only two people used the code," she said.

Fatzinger also warns about a one-hit wonder phenomenon that some businesses have faced.

"It's almost like it's turning consumers into locusts, because they're just going to go find the good deals and not going back," he said. "And if [people] have a bad experience you're also going to amplify the bad experience."

Nakao said they warn their merchants about offering more than they can afford, and said his company's solution is to cap how many coupons each business offers, and by not requiring a fee up front. 

"There's like a sweet spot of deals that works for the merchant," he said. "There's nothing worse than buying something and having to wait three months for an appointment."

As for Catzen and her pole dancing class, "we had to scramble," she said. "I was not prepared for sales that huge."

In order to offer discounted classes and still make her profit margin, she not only had to train new instructors, she and all the teachers had to take a major pay cut.

But she said is making a profit, and prefers having more classes and more students.

"Why would you turn away people who want to sample your business?" she asked.
 

 

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