The marketer offered a $40 sampler kit and coupon book for $20 to consumers in Minneapolis/St. Paul and San Francisco. The offer included delivery of product to consumers’ homes.
Let’s look at that again: a 50% discount, plus up to 50% of the net revenue shared with Groupon, plus free shipping.
At first glance, this would be a nonstarter in most CPG marketing plans. But taking a second look at the idea, General Mills did 8 things right:
1. Being creative about “value.” The program was $40 of value for $20, but that included $15 of coupons.
2. Selecting high profit items. It’s easier to discount with 50% gross margins.
3. Going for variety. Fiber One bars and Reese’s cereal? Cascadian Farms and Fruit Rollups? General Mills helped ensure trial through non-complementary items.
4. Classifying as sampling. Samples are typically free, so getting any revenue at all on this line item looks like a win.
5. Capitalizing on breakage. Typical estimates put Groupon nonredemption at 20%. That’s 20% at a full 50% profit (after Groupon rev share).
6. Distributing coupons. Getting $15 of coupons in shoppers’ hands costs money. Here, postage was paid for.
7. Limiting quantities. General Mills limited the test to Minneapolis and San Francisco and only 5000 units.
8. Gaining publicity. The program expanded virally and sold out within hours. News media, bloggers, and Groupon buyers alike spread the news.
The program had its flaws. Running the test in General Mills’ home town and in e-savvy San Francisco would not yield typical US market results. Further, since the products have long shelf lives and short purchase cycles, General Mills risked cannibalizing full margin purchases.
But Mills marketers have been smart about digital marketing ever since proving they could drive larger basket size through a simple email campaign a decade ago. Whether the Groupon promotion generated enough re-purchase to justify repeating is something only General Mills will know (and they will, but don’t expect them to tell).