To Groupon Or Not To Groupon
Date: November 25th, 2011
Groupon Deals Are Killing Your Bottom Line
We have seen a massive proliferation of Groupon offerings from clinics hoping to increase their brand awareness by offering deeply discounted incentives to new patients... But is it really working?
The discount shopping mentality is taking the aesthetic industry by storm, and unfortunately it is being propagated by clinics that may not completely understand the effects of their actions. Let’s take a moment to examine exactly how these offers work, and whether they are truly effective for your medical spa or laser clinic.
Clinic A: The Deadly Cost of Advertising
Clinic A is offering an 87% discount on laser treatments. The starting price is $747 for 3 treatments, and Groupon mandates a savings of $648. The resulting price is $99 for 3 treatments.
The standard Groupon cut of the sale price is 50%, which means Groupon gets $49.50 for each sale, while the clinic gets the same. If the Groupon ad results in 700 sales, Clinic A earns a total of $34,650 from the promotion. Not bad, right? Wrong!
With 700 sales of 3-treatment packages, that gross number of $34,650 translates as a mere $16.50 per treatment. ($34,650 /2100 treatments = $16.50 per treatment)
That's $16.50 before any staffing costs, rent, treatment tips or appointment scheduling. It means your treatment room is tied up for over 1,000 hours, or 9 to 12 months, and can't be used for other (more profitable) services. Clinic A will also have to deal with all the support issues: phone calls, appointment setting, consultations, equipment depreciation and the inevitable complaints and patient issues that arise any time you're treating a patient population of 700 individuals.
There is simply no conceivable way Clinic A can remain profitable in this scenario. Furthermore, their business will be compromised as they will be forced to cut corners in order to service the patient load as quickly as possible.
To fulfill the obligations of the Groupon ad, Clinic A will be under a great deal of pressure. They will forget the little details that make the YOLO experience different - no before and after pictures, improper measurements, less education about the importance of a diet, exercise and lifestyle program. Clinic A's waiting room will be crammed full of frustrated clients. They will be scheduling patients during off hours.
And all of this leads to exactly the opposite result that Clinic A was looking for: happy, repeat clients. Instead, clients are impatient and dissatisfied.
It is also important to understand that the people purchasing these Groupon deals are coming from a very low price base, and will be nearly impossible to upsell to a complete package or cross-sell into other treatments, because they’ll be right back on Groupon looking for the next "best deal."
When you sell your services at this level of discounting, you will be considered the "cheap" player in the marketplace, and you will never be able to control your pricing moving forward. You will never create steady, repeat buyers that pay a premium for your services. You will never be able to bring in bigger treatment pricing. And you will have constant cash flow problems.
Clinic A will fall into the trap of being perceived as a "discount clinic," and will always be scraping the bottom of the barrel - that is, if it even survives this type of cutthroat slash-and-burn price war.
For Groupon, this is no problem: they just made $34,650 from Clinic A simply by sending out an email. However, Clinic A must deliver all the services, make all the appointments, deal with the customers, and put their reputation and business on the line. There is also the potential of many unforeseen issues that Clinic A may not have thought of, such as malpractice insurance or medical licensing.
It's an unfortunate scenario that is sorely misunderstood by many in the industry. But the power of social media remains enticing... and surely there is a way to use these media giants to our advantage!
Here's what YOLO believes should happen...
Clinic B: Effective Groupon Advertising
Clinic B sells 101 deals in a 24-hour period at a more reasonable value of $599 for 3 treatments, with a regular retail value of $899. That's still a 44% discount on services, which is a tremendous deal by any standard.
With this higher treatment value, Clinic B has more leverage with Groupon to negotiate a much better split on the deal, giving a maximum of 40% to Groupon, while Clinic B retains a minimum of 60%.
Clinic B makes $359.40 per treatment in this scenario, bringing in a total of $36,299 - a very respectable influx of cash. With 101 sales at 3 treatments per sale, that $36,299 means almost $120 per treatment. ($36,299/303 treatments = $119.80)
Now we have a more manageable group of patients with virtually the same revenue generated by the ad (remember, in the previous scenario the gross amount was $34,650). And now, Clinic B can maintain the integrity of the clinic, the staff and the value of the technology. They have a realistic number of clients that can be serviced in a realistic amount of time. Even more important, they maintain the ability to establish their own pricing - rather than being driven by Groupon - plus the ability to raise the price per treatment in the future.
YOLO's Goal: Uniting Clinics for Long-term Success
Groupon and other social media companies' sole mandate is to drive as much traffic as possible at a price that is often so low, they are the only ones to experience financial gain. These types of companies have taken the power away from you, the clinic, and are trying to control your pricing for their own financial benefit.
The pricing structure they offer is undercutting the industry and devaluing the technology. This results in a product offering that will appeal only to a discount shopping mentality. Furthermore, we must look at the global effect of these slashed prices on clinics that do not participate in social media campaigns and discount pricing structures. The industry as a whole is devalued.
YOLO's goal is to unite all clinics together and take back the power from these social media giants, returning it to where it belongs: YOUR CLINIC. We need to ensure that advertising is compliant, pricing is standardized, and your clinic generates a sustainable income through these ads.
Our mandate is to protect our industry, your clinic, the technology and the YOLO brand, to ensure that we all grow together and our success is long-term.
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