I just started reading Confessions of an Advertising Man
He lists four problems that advertising faces, and I highlight excerpts of problem one (highlighting is my own):
The first problem is that manufacturers of package-goods products, which have always been the mainstay of advertising, are now spending twice as much on price-off deals as on advertising. They are buying volume by price discounting, instead of using advertising to build strong brands. Any damn fool can put on a price reduction, but it takes brains and perseverance to create a brand.
Listen to a speech I made in Chicago in 1955:
“The time has come to sound an alarm, to warn manufacturers what is going to happen to their brands if they spend so much on deals that there is no money left for advertising to build their brand. Deals don’t build the kind of indestructible image which is the only thing that can make your brand part of the fabric of life.”
Andrew Ehrenberg of the London Business School has one of the best brains in marketing today. He reports that a cut-price offer can induce people to try a brand, but they return to their habitual brands as if nothing had happened.
Why are so many brand managers addicted to price-cutting deals? Because the people who employ them are only interested in next quarter’s profit. Why? Because they are more concerned with their stock options that the future of their company.
Price-off deals are a drug. Ask a drug-addicted brand manager what happened to his share of the market after the delirium of the deal subsided. He will change the subject. Ask him if the deal increased his profit. Again he will change the subject.
This was David Ogilvy talking about modern group buying sites in 1963.
Yesterday I asked on Twitter: Do you run a restaurant? Have you succeeded in running a group buying deal? Have you seen return customers? Comments like its a scam, anyone that wants a cut price deal is unlikely to return for full price, and even feedback from buyers whom don’t return due to disappointing experiences or how the food just isn’t worth the full price. I had some offline conversations about this and the ones that did return were basically already loyal customers saving money through a deal.
My own thoughts about group buying have been posted before: a Groupon before you close looking at the deal dynamics behind a deal, and some initial thoughts when they first started becoming mainstream.