Should Your Company be Using Groupon?

November 11th, 2011

Whole Foods is doing it. The 5 nail salons down the street are doing it. The local outdoor shop is doing it (twice). Even the fanciest restaurant in town has succumbed to the pull of the daily deal. Are you starting to wonder if your business should jump on the daily deal bandwagon? And if you do decide to jump on, how can you effectively acquire and retain these new customers?

For the sake of research, I subscribed to nearly 30 daily deal, specialty, group buying and members only sites and then treated myself to groceries, dinners, manicures, outdoor gear and sailing lessons.

First let’s consider why different companies choose to participate in daily deals.

Whole Foods ran a nation-wide deal with LivingSocial in hopes of quickly acquiring new customers and that they did – within a few hours they maxed out at their 1,000,000 deal limit. Whether they will make money off the deal is questionable; there is no clear upsell plan in place and they don’t know how many coupon redeemers were new vs. old customers. However, the free viral marketing they got from the deal was fantastic. Facebook and Twitter were on fire with people sharing the deal in hopes of getting the deal for free.

Neighborhood restaurants, shops and salons are using daily deals to build awareness and drive traffic into their shops. Because of these great offers, I have tried out three different nail salons, many new restaurants and even a new hair salon (I won’t do that again.) Unless the service is excellent or differentiated, chances are I won’t return without being incentivized again.

Back in March, a local outdoor retail store used LivingSocial to offer a daily deal. I redeemed my coupon in July and during the purchase process they collected the following data: my email address, how much I spent and if I had ever been into the store before. In September they offered the same deal on Groupon and I quickly snatched it up. Why does this shop keep offering up these deals? One reason could be that this store has some huge competition in the Seattle area – customer favorite REI (who recently partnered with Google Offers to give consumers a $25 for $15 deal.) Because of the second deal, I am going to return to this local outdoor shop for a second time. Again I have $25 of their dollars to spend but have no other incentive to stick around and change loyalties.

One of the first deals I saw on a site called Zozi was sailing lessons for two. I had never heard of the company but it sounded legit so I invited my friend to come along. We showed up and as we were sailing I peppered the owner/instructor with questions. Why did you choose to do a daily deal? He was a new business and wanted to build brand awareness and bring in new customers. Why did you choose to go with Zozi? It was a company that offered local experiences and would complement his brand well. How do you plan on getting me to come back? He would give us another discount if we decided to come back for the next level of sailing classes. We said maybe in the spring.

Even the fanciest of restaurants, the ones who said they would never do a daily deal for fear of brand dilution, have succumbed to the pull of the daily deal. One restaurant partnered with a premium deal site to offer an exclusive experience, at a discount. Unfortunately, a discount is a discount, no matter how it is framed. Once people get used to getting discounts it is hard to get them back without another discount. Luckily this restaurant offers a topnotch customer experience and shouldn’t have a problem. However, I recommend that other high-end brands be careful about offering up their services at a discount to the masses if they want to maintain their brand equity and pricing power.

Before you call up Groupon, you need to decide which daily deal company best suits your needs and how you are going to get the most value out of your offer. Groupon, LivingSocial, Google Offers and AmazonLocal are the heavy hitters in this market. They have the largest subscriber base so if you are looking for as many purchases as possible and have a flexible launch date, these might be your best bets. If your offering is more niche you can consider other options. Tippr, Urban Dealight and DealFind have more of a local feel. Zozi offers adventures and experiences. Zulily focuses on daily deals for moms, babies and kids. Bloomspot (and Bloomspot premium) have a more polished feel, though many of the deals are similar to the other sites. There are also invite-only sites like Rue La La (Rue Seattle) which offer higher end deals.

Once you have your partner picked out you need to consider one more, often overlooked, detail before you launch your first deal. How you are going to make money off these newly acquired customers in the future? The worst thing I can think of is that a customer buys a $40 coupon for $20, comes into your shop, spends the $40 and then never returns. You have to create a customer experience that will drive upsell and create customer lifetime value. How can you do this? Collecting data is the first step. Just like that local outdoor shop, if the customer is willing, ask for their contact information and create a shopping history log by noting how much they spend, what they bought and if they have ever made a purchase in your shop. Then you can use this data to create a personalized reason for this person to come back. For example, if I bought a climbing helmet in your outdoor shop, you could send me an offer for 15% off a climbing harness and a free harness fitting. Or you could invite me to a showing of a climbing movie, whether at your shop or another venue in town. Your primary goal should be to build a relationship with your customers and with that will come customer loyalty.

If you are still considering partnering with a deal site don’t forget the three key steps: 1) Assess your business need, 2) thoughtfully evaluate your partner options and 3) have a plan to build relationships to turn newly acquired customers into lifetime customers.

— Posted by Pam Spier, Consultant, Lenati

Entry Filed under: Customer Experience, Marketing, Retail