Tuesday, August 21, 2012

Why Groupon Should Have Listened To Claude Hopkins...

It looks like the honeymoon is over for Groupon, judging by this recent article at Slate.com. The stock price has dropped from over $31/share down to $5.36 and no profits to speak of. Instead, Groupon has an annual net loss of 27 cents a share. Just like the over-hyped dot.com stocks of the late 90s, this Social Media darling has had plenty of hype and hot air... but nothing in the way of earnings, or a good business model.

You may be asking: "Why should Groupon have listened to Claude Hopkins... who the heck was he... and why was/is he so important when it comes to marketing and business?"

Claude was one of the great advertising pioneers of the early 20th Century. He believed that advertising existed only to sell something, and the results should be measurable and justify the results it produced. (That sounds familiar... I wonder who else has been talking about that?)... but I digress.

Hopkins wrote the classic marketing book Scientific Advertising in 1923. What Claude said back then about advertising still applies today. If you're serious about marketing or business, you should read this book. I'm reading it for the fifth time, learning (and re-learning) solid marketing fundamentals.

Groupon's execs should have read what Claude wrote to avoid the problems they face today.

What are these problems? Lack of long-term, repeat customers that result from Groupon and "daily deal" advertising... small-business clients selling goods and services at a discount... then paying Groupon steep commissions - usually 50% of the already-discounted sales price.

Groupon's business model assumes that a company will sell a discounted "sample" of its product or service.... then customers will gladly pay full price on future buys. That doesn't make sense to me, and it didn't make sense to Claude.

Here's what he says in Chapter 13 - The Use of Samples:

"For the same reason some advertisers say, 'You buy one package, we will buy the other (Ed: Buy one, get one free).' Or they make a coupon good for part of the purchase price. Any keyed returns will clearly prove that such offers do not pay. Before a prospect is converted, it is approximately as hard to get half price for your article as to get the full price for it. 

As Claude Hopkins reminds us, it's difficult (if not impossible) to pull this marketing feat off.

It's a great lesson for business owners, investors and marketers alike. Before you start-up or invest in any new or existing business, make sure it has a good long-term sustainable business model... and competent, experienced management.

Or if you consider hiring a marketing consultant or copywriter, ask them if they know who Claude Hopkins is. I can almost guarantee you that many of today's "social media experts" don't have a clue who Mr. Hopkins was... and why his words of wisdom are still so important today.

They know the ins and outs... likes and pokes... tweets and re-tweets of Facebook and Twitter... but I'm not convinced they truly know the "old-school" fundamentals of good marketing - which (if applied correctly) always work in any type of market or advertising medium.

That's what I'll cover in my next blog post, which talks about the difference between the medium and the marketing... and why it's so important for your business.

Until next time...

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