by Bruce Newman

This article was originally published in The Productivity Institute (PI) Newsletter

Coupons have been around seemingly forever. In social media, however, they have now taken on a new incarnation: groupons.  What’s a groupon?  A groupon is a coupon that requires a predetermined minimum number of people to use it before it becomes effective.

To elucidate further by use of an example, a store offers a coupon for 60% off of some item. However, since this may be a drastic reduction, it needs to make a minimum number of sales for this promotion to be cost effective.  It sets this minimum and the percentage off for the product when creating the groupon.  Using the groupon, a buyer will purchase the item at the reduced price with their credit card.  However, the charge won’t be made and the purchase won’t be completed until the specified minimum number of groupons are used by interested buyers.  For this reason, buyers are encouraged to use social media – such as Facebook, Twitter and mobile – to tell other potential buyers about the sale.  The seller wins because it gets a lot of publicity and – potentially - moves a lot of merchandise. The buyers win because they get a large group discount and Groupon wins because its user base continues to increase.  In Groupon’s first nationwide campaign which just ended, it partnered with the Gap by offering $50 worth of apparel for $25 (a 50% groupon).  This resulted in 441,000 groupons and over $11 million in sales.  Did the Gap make a profit on the sale? Probably, but more importantly, it generated a huge audience and brand awareness.

Since the software behind this popular group model is rather simple, a growing number of sites are also offering group coupons – usually with a twist or specific market emphasis.  Some of these sites include: livingsocial, adility, 8coupons and even Zagat.  The food and restaurant industry is very intrigued by this model.  Baskin & Robbins used this model (in part) to help build their fan page to over 722,000 fans.

Increasingly, the goal of many social media campaigns is to build community and enhance brand recognition.  Chris Gayton, Gap’s Senior Director reported that it uses social media to reach people and direct them to Gap’s website where 70% of them make a purchase at a Gap store.  So, while the 441,000 groupons were generated by the Gap’s promotion, the real benefit was probably the number of people who were directed to their site.

Many campaigns are starting to emphasize brand exposure and effective campaign strategy.  As a test, on April 16th of this year, McDonald’s ran a campaign on Foursquare that involved the random offering of 100 gift cards in denominations of $5 and $10 to people who checked in through Foursquare.  Although the entire campaign totaled less than $1,000, it was able to increase McDonald’s foot traffic nationwide on that day by 33%.  Success stories also abound for restaurants with only one location.

Social media is rapidly gaining in importance to most businesses.  It has greatly increased connectedness to levels that will only increase as additional social and mobile technologies are developed.  It can greatly enhance brand and company recognition while deriving significant additional business and since this technology is horizontal, it is applicable to most businesses regardless of their size.

Not all companies can sell 441,000 groupons but most would happily settle for a 33% increase in traffic in exchange for a minimal time and financial expenditure.

Bruce Newman is the Vice President at The Productivity Institute, LLC, a leader in locating, evaluating and matching the specific areas of expertise of consultants to the needs of its clients. An expert on social media, Bruce constantly writes and gives talks on many facets of social media including branding, social media strategies and policy.  He has developed several social media courses, his latest course being the Social Media Starter Pack. In addition, Bruce is the editor of the Productivity Institute Newsletter, a free content-is-king newsletter and thought leader. Follow him on LinkedIn, Twitter, Facebook and the Productivity Institute blog. Email: bnewman@prodinst.com