Six Pixels of Separation - The Blog
October 4, 2011 4:07 PM

Don't Blame Groupon

No loyalty? Don't like these bargain-hunting customers? Don't blame Groupon.

I have no desire for another daily deal on a pedicure, manicure, hair removal or a Lebanese Asian meal, but I am still interested in seeing what new businesses in my area are open and what they're offering. And, if the experience is great, I'm happy to continually be a loyal customer and tell everyone I know about it. Sadly, it appears that the merchants are beginning to revolt against Groupon and other daily deal sites. On October 1st, The New York Times published the article, Coupon Sites Are a Great Deal, but Not Always to Merchants, which further pushed the grumblings of merchants and the outcomes of taking part in a Groupon (or Groupon-like) experience, and what it has done to grow their business. If you believe The New York Times (and the countless other newspaper, magazine, TV reports and Blog posts lambasting of these services), you would think that Groupon is solely in the business of taking fifty-percent of the offer and running on to the next daily deal.

Newsflash: that is exactly what Groupon is doing... and it's not supposed to do much more.

Groupon has a database of customers that have proactively signed up to receive a daily deal in their local marketplace. Think about that: 365 offers a year. While that may seem staggering, take a look at your weekly flyers in the newspaper. How many coupons do you see there? How many people have proactively requested those? It's impossible to say that the public is experiencing coupon fatigue, because the public is blasted with coupons left, right and center and they have been for decades. 365 more coupons a year is not the tipping point towards fatigue, and all of the marketing research in the world will tell you that couponing works. If it didn't, Marketers would be changing their tactics. If customers were tired of Groupon-type offers, it's all a simple "unsubscribe" button to have oneself removed from receiving them.

A coupon is an introduction. A Groupon is an introduction.

Don't blame Groupon for the results, blame the local retailers. No one is putting a gun to any local merchant's head to make these deals. Merchants can choose when to do these deals, how much to offer and more. It's up to the merchants to build that relationship, and then the loyalty once a customer walks into the door. It's amazing to me that merchants actually complain about this. On the other side, I've heard countless stories from customers who go to these local merchants only to have a sub-par experience because the merchant is too busy grumbling about having to fulfill all of these rebates or is not happy with how few people have redeemed them. While I'm sure that Groupon and other daily deal sites make a lot of promises in selling these opportunities to retailers, it's still - one hundred percent - the retailers opportunity to win over some new customers and build loyalty. A coupon can't (and never will be able to) do that.

No one customer is alike?

While there are countless customers just looking for a quick bargain (and nothing more), retailers need to smarten up and wake-up to this reality (think of it as shrinkage). Wal-mart is well aware that those coming in to capitalize on a ridiculous offer for diapers may only be there for that one coupon and will never come back again. It's Wal-Mart's challenge and opportunity to "up the basket" not the coupon's. There are also people who will use a coupon, enjoy the experience and come back. So, while no two customers are alike, both of them are offering the retailer an opportunity to do more... to actually get them to come back and (if all goes well) to add another loyal customer to their business. Discounts don't lead to life-long customers who are now willing to pay full price... a great experience will do this.

People aren't that hard to please.

The New York Times' piece goes on to quote a new study by researchers at Boston University and Harvard that has explored thousands of daily deals (Daily Deals: Prediction, Social Diffusion, and Reputational Ramifications). "The researchers found that fans of daily deals were on average hard to please. After they ate at the restaurant or visited the spa, they went on Yelp and grumbled about it. This pulled down the average Yelp rating by as much as half a point." Is this Groupon or LivingSocial's fault or was this a failure of the retail experience? Push this notion even further: if a business were performing at its best, would it even need a Groupon service to spread the word? If a business were performing at it's best, wouldn't a Groupon experience only build on their reputation and quality? In the vast world of new media marketing experiences, maybe the focus needs to be more on delivering a great experience at the retail level instead of complaining about people redeeming coupons (or not) when the retailer was the one who chose to take part in the marketing initiative.

Groupon is simply a promotional tool. It's the actual experience of the customer that will build repeat visits and true loyalty, not a coupon or an offer.

The above posting is my twice-monthly column for The Huffington Post called, Media Hacker. I cross-post it here with all the links and tags for your reading pleasure, but you can check out the original version online here:

By Mitch Joel


Comments Comments Feed
  • Posted by Christine
    Mitch Joel

    Thanks for this Mitch. I have to say this post in bang on. I've been following the negative press surrounding daily deal sites for some time and they've all missed the point you've made. If the merchant is unable to deliver an experience that "shocks and awes" the consumer, of course they will not return. If the experience is worthy of its retail price, the consumers will return. Groupon is delivering and now they are taking the fall for the merchants that cannot uphold the expectations of their customers!

    Reply
  • Posted by Nick Sweeney
    Mitch Joel

    "Discounts don't lead to life-long customers who are now willing to pay full price... a great experience will do this."

    Amen! At CoupSmart, we ALWAYS tell the companies who use our product to never just sell on price alone.

    There's always a prettier girl and there's always a cheaper discount. But if you get creative about HOW you discount and WHAT you offer, you can really draw a lot more customers who - surprise! - would be excited to return.

    So, don't just offer 1/2 off a massage, because then customers will come to expect 1/2 price. Instead, offer a free meditation CD, an added upgrade with the purchase of a full-price massage, etc. Be creative about your offers!

    And if you can't handle an influx of twice as many new customers (all paying half price, so you end up doing twice the work for the same amount of revenue), limit the amoutn of coupons you offer.

    Small businesses need to take more control of their own marketing destinies. Coupons work (they're the #1 reason people like business Facebook Pages), but they need to work for you, not against you (and certainly not against your customers).

    Reply
  • Posted by Jason Pelker
    Mitch Joel

    Too many retail outlets (and businesses or organizations, in general) suffer from the "build it and they will come" mentality.

    You're exactly right: business owners would rather find a shortcut than work their butts off to retain loyalty. A customer is not just a sale; he's a person. If you treat him like one, he's infinitely more likely to return and infinitely more likely to tell his friends about the good experience he had.

    The cliche of the chef talking to patrons at an expensive restaurant? It's simple, yes, but it works. Ultimately, people just want to feel special. Ignoring them while they're spending money at your shop doesn't make them feel special at all.

    Reply
  • Posted by Andrew Goodman
    Mitch Joel

    On one hand, I can sympathize with "what goes wrong" for local businesses who cut these deals. Because they are often quite hands-on entrepreneurs with some domain expertise and street smarts -- but not familiarity with a wide range of tactics -- they get caught up in a "one-off" failure in a type of marketing that is simply novel to them. Many are also susceptible to ego battles, price wars, etc.; that's human nature... normal (not blameworthy) degrees of fear, greed, and ignorance.

    Unfortunately, no matter what type of business you own or build, it's not just about hard work or localized expertise. It's often a brutal process of natural selection. If you're just not street smart enough and don't understand how to do a quick risk calculation, then you are probably going to get killed.

    The recent Toronto Life piece on this portrayed a premium butcher shop taking something like a mid six figure loss doing groupon style discounting on cut-rate premium cuts of meat. After a time, he realized this was not creating loyalty to his store at full price. Amazingly enough, when you take five dollar bills and put them on sale for $1, people will be lined up around the block. But they won't be back later to pay $5 for them.

    I came away from the piece not feeling particularly sorry for the business owner. Ultimately, they're responsible for not taking boneheaded decisions and spinning the roulette wheel constantly. Eventually, if that's how you run a business, you lose. You'd like to think you could teach a course that includes the warning: "sometimes a loss leader is just a loss." But in the end, you and I both know: you can't teach common sense.

    A controlled, experimental version of "lack of common sense" will actually help some amazing entrepreneurs reach amazing heights. But few businesses can survive frequent boneheaded decisions. If you're going to give away $5 bills for $1, you'd better have a really good business case. And don't give away too many.

    Reply
  • Posted by Hassaan Basit
    Mitch Joel

    Terrific post as always Mitch.

    Here is what I was taught, 'it's ok to cut your price to drive sales, but first, admit defeat as a marketer'. Now, I know this statement is not meant to be taken literally, but there is a lot of truth to it, and a number of others have touched on this in their comments above.

    I use Groupons quite a bit, and have yet to adopt a new brand as a result of any one of my experiences. That comes down to a medicore product and/or an unispiring exprience - retailer's fault, not Groupon's, as Mitch has already explained.

    Having said that, I do tend to buy Groupons for my favourite or otherwise trusted brands. In these cases, the business is again, not gaining a new customer. This is no different than offering discounts to loyalty card-holders, again, not Groupon's fault.

    To avoid all this, businesses, especially small businesses such as spas and resturants, need to create new products and offer those through Groupon, rather than slash prices from existing menus/pricelists. This way a returning customer will not face the dilemma of having to pay more for a previously discounted product or service.

    That's IF the customer returns, which simply takes this entire argument back to Mitch's take-home message!

    Reply
  • Posted by naomi richmond
    naomi richmond

    I purchased the Toronto butcher shop deal that Andrew Gordon mentions, in part because of course it appeared to be great value and because I wanted to check out a new place and its wares. Had the experience been even remotely pleasant, and the product excellent, I would have been happy to go out of my way and considerable distance (40km in my case) on other occasions and become a loyal customer and potentially raving fan. But no...7 months later I had no choice but to negotiate a credit from the original deal site.

    Customers can be fickle, finnicky and downright horrible sometimes. But merchants need to step up to the plate and take responsibility for all the elements that they can control or affect in the overall customer experience and service process, and thereby better their chance for longer-term success.

    Reply
  • Posted by Walter
    Mitch Joel

    Hey Mitch,

    First thanks for your comment on my recent post in Young Upstarts reviewing your excellent book "Six Pixels of Separation". Appreciate it much. :)

    On the issue of Groupon (and its many clones, there are half a dozen of them in Singapore), the challenge as you rightly pointed out is for the merchants to maximise its reach to draw first time customers. Once they have bought a "groupon" and used it, the merchant should then ensure that the experience is optimal and not "discounted", and perhaps upsell additional services/products to the customer while not compromising on the experience.

    As a Groupon subscriber, I'm generally wary of merchants that repeatedly offer promotions. This would tell me two things:

    1) The deal isn't as good as what its made out to be.

    2) There could be a serious service/quality problem with that merchant.

    Reply
  • Posted by Parissa Behnia
    Mitch Joel

    You're exactly right to say that it is 100% up to the merchant to create an experience such that a Groupon customer returns to pay full price. If you're adult enough to open the business, you have to be adult enough to accept that responsibility.

    That said, I wonder at the nature of the Groupon sales process and if a lack of consultative follow through on Groupon's part contributes to the horror stories we hear. If we think about this further, Groupon has a responsibility to its own viability to have more of a consultative approach to their sales to at least the smaller merchants. If not, they've the same risk of "one and done" as their clients do because of... you guessed it... bad Groupon customer experience.

    Reply
  • Posted by Farah
    Farah

    Speaking from personal experience, I've used Groupons in places that served me horrible food and treated me terribly for using a Groupon. I've never returned. It's a missed opportunity for these companies. Not surprisingly, the restaurants that I've had an amazing experience with will often use Groupon again. The proof is in the pudding.

    Reply
  • Posted by Neil Johnson
    Mitch Joel

    Where has good old fashioned customer service gone?
    If a company has to rely on a group on style customer visiting once with a 50% discount voucher, the service or retail operator should be hanging their heads in shame.
    It all comes down to value and service, either perceived or actual, but as this is subjective, regular customers must feel that something is there.
    We have 2 chinese restaurants near to where I live, 1 is expensive and full of chinese people, the other is quite cheap but never anyone in there.
    Would you try the cheap one with 50% off or stick to where you know the service is good and the food exceptional.
    It's a little like our blogs.
    I am new to the internet marketing world and today I think I had an epiphany.
    I have today realised that the blog is actually for my readers based on my story, not just for me to make search engine friendly for my needs.
    We are like retailers offering what the customer wants but with the constant eye on quality and getting in touch with our readers which in turn acts like a constant groupon coupon.

    Reply
  • This article is spot on Mitch. Like Farah, used Groupon in restaurants, and left feeling the whole experience was below par - smaller portions than non Groupon customers, disgruntled owner/staff who, I felt, resented my being there. No intention of becoming a repeat customer. In fact don't bother with Groupon anymore as I know the offer will likely provide something less than average. On the flip side however a friend works at a local spa part time, busy mom, juggling 2 jobs etc. Her employer did a Groupon offer, and she was unhappy because her employer demanded she put in more hours to cover demand. Seems like employers need to put in more thought before placibg offers on Groupon.

    Reply
  • Posted by Carlos Lluberes
    Mitch Joel

    Great analysis! I really agree on the fact that for business groupons are only useful for attracting traffic, so it translates in an opportunity for loyalty but at the end is a really tricky business. I support the statement that a merchant must provide a great experience to those coupons-barer customer, so they can convert into permanent customers (with standard offers).

    P.D.: Love this blog, keep up with this great work.

    Reply
  • Posted by Eva
    Mitch Joel

    The article and the comments are correct in stating how businesses are not being served by services like Groupon- especially when they don't understand the full implication to their businesses. And I am not talking about just the loss of profits but the additional burden on the business (and the employees) and not knowing how to take that opportunity to create a new customer that they can continue marketing to in the future.

    We work with small business that are desperate to get additional customers and fall for too many marketing practices that, at the end, don't perform for their businesses and leave then with a bad taste for marketing overall. We always go in trying to educate them as to what would be best for their current circumstances and what could work best and without exorbitant cost and/or effort on their part

    The problem sometimes is that they don't want to know HOW- to get more customers to come back, buy more and more often. They just want visitors to their site or customers in the door wthout working the numbers in the first place.

    It really is up to services like ours to try and educate the business owners about the possibilities as well as to the implications of their decisions before we go ahead and recommend and implement any marketing campaign for their business. In the end, it does work best if we understand the needs of the business and the best way to help them and the business understands what's in it for them before we get started (which is NOT what Groupon's way of business is at all).

    Reply
  • Posted by deals
    Mitch Joel

    I totally agree with the post! Groupon is a service that has good and bad potential! It depends on how businesses choose to use it! Businesses shouldn't get greedy and they should educate themselves before using any marketing tool, cause they all have the potential to go both ways!

    Reply
  • Posted by John Yaeger
    Mitch Joel

    Groupon is such a hype almost everybody are diving into it. This is sort of awakening for a small business owners who are just going with the flow. Money is not just what keeps business going, it's the customers that stays.

    Reply
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