Retail is a competitive industry, and with the holiday sales season of 2010 looming ahead, the business of serving consumers at the street level will become even more intense. Many marketing tactics and advertising channels are put to the test during the busy season, and some are better than others. In recent days, there has been a lot of buzz over the term “groupon,” and it has become a topic surrounded by mystery for some retailers who want to make the most of any device they can, to maximize profits. Here is a quick study on groupons, and where they may be useful – or fall short – for those in the retail industry.

First of all, “Groupon” is a brand name for a business. However, the name has become somewhat eponymous, just like “Band-Aid,” “Coke,” or “Kleenex.” Competitors to the Groupon name have also sprung up like crazy, and the word has become somewhat genericized.

Okay, so sometimes there’s a lowercase “g” in groupon. Now that there are a whole bunch of groupons out there, what should the savvy retailer be thinking about?

First of all, a groupon is a community-driven discount that allows consumers to take advantage of specials and promotions by showing up in a group. Companies that organize groupons spend their time  negotiating huge discounts on popular local goods, services, and sometimes even cultural events or performances. The deals are then offered to hundreds or thousands of subscribers in a free daily email, a website, or other forms of mass communications. These deals are activated only after a minimum number of people respond to the promotion, and agree to buy when they show up with their print-out of a personalized groupon.

It’s a model that sounds like a real win-win scenario, since the consumers gt a great deal from a popular outlet, and the business gets a lot of instant customers who will likely return once they’ve had a chance to sample the goods.

Moreover, groupons have been compared to city guides, social networking tools, and the best way to experience something new without paying full price.

So what’s the problem?

Like many other forms of mass communications, this one has real power to make or break a profitable period. If used correctly, the groupon will do everything that was mentioned above, and everyone will be happy. If it is used incorrectly, it could prove painful to the both the retail outlet and the consumer. Lasting effects could become disastrous as well.

The nightmare scenario for a retailer who takes a shot at using a groupon for promoting the business is made up of bargain-hungry consumers who rudely barge in hordes, expecting the same level of customer service as customers who pay regular price, and then vanishing after paying only what the groupon’s face value was, and never being seen again.

The key is being careful to construct a groupon that won’t represent a huge imbalance to loyal customers, and making sure that the date on the offer is during one of the low points in consumer traffic.

With studies still being relatively limited when it comes to groupons and their statistics, there I still a lot of margin for error. There are also new and innovative tactics being designed almost daily by entrepreneurial types who are trying to cash in on the groupon craze by offering their own version of this program to retail and service industries around the world. An ounce of prevention is worth a pound of cure, and with groupons, all signs point to developing a sound plan before launching a phenomenal discount program that leaves the coffers empty, and the sign flipped over to “Closed.”