Who wants to pay full price for something? I do not.

So I “lit up” when social shopping sites like Groupon and Living Social started popping up. They gather deep discount offers from all types of businesses and present them to millions of potential customers.

That “million” is misleading. Groupon, for example, has close to 60 million registered consumers, but that’s nationwide. The offers (and the businesses that make them through social shopping sites) are mostly local: restaurants, spas, etc. I received three offers: 50% off Asian rate at Soo Woo, 60% off at Women’s Film & Art Festival, and 70% off Botox (Yikes!).

I’ll give you my email, but not much else!

Consumers start by logging into a social shopping site that somehow knows roughly where you are. In my case, that’s Miami. You are asked to confirm that, then they ask for your email address and age. It is not a big thing. Then another screen appears asking for more information: name, address, etc. This is a bit off putting to some of the people I’ve talked to.

I found the geography a bit strange at times. Today’s Groupon deal is for a clear city-wide business. If you’ve ever driven in Miami, you know it might as well be in another country.

Don’t get on the bandwagon just yet!

Nonetheless, small businesses seem to find social shopping sites to be dream marketing tools. They do not pay upfront setup fees and commissions are negotiable.

Groupon handles all of their purchases through their website and they are very involved in making sure their customers are successful. If you don’t succeed, then they won’t.

Of course there are possible falls. If you run, say, a family-run ice cream parlor that regularly serves 40 or 50 people a day, what would you do if 500 people showed up?

How can I lose? Are the profits more meager?

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

Open bar … we will lose our shirts!

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

Will I charge my full price again?

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

– Will the discount of your product or service damage the integrity of your prices? Will people wait for their next coupon and not bother to pay full price?

– What is the potential lifetime value (LTV) of customers who come for special offers?

– Are they “opportunity seekers” and not regular customers?

You also have to think about your current customers. Will a loyal customer paying full price be irritated when newcomers pay half? Perhaps, and perhaps, alienating your current customer base isn’t worth it.

It can also become a problem when companies don’t treat social site buyers as well as they treat their regular customers.

Maybe I’ll go to your coffee this week.

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 I feel out of place in every way imaginable. I’m not going to come back.

For some businesses like hair salons, spas, restaurants, and recreational activities, social shopping can be a great idea. But what about other companies like lawyers, accountants, advertising agencies, real estate agents, and other services?

What do you think of this phenomenon of social shopping? I would love to hear from you. Please comment below.