Daily Deal sites like Groupon and Living Social can cause problems for a business due to hurting its’ profitability, brand and relationship with customers.
With a discount offer, the business is probably appealing to customers that purchase on price. It is unlikely customers will come back to the business in the future to purchase products and services at full value. In a column on AdAge.com, Al Ries, the famous marketing consultant, states:
“Presumably, all those consumers who bought products and services for 50% off are going to be happy to return to their local retailers and return to buy those same products and services at full prices. That’s not going to happen. What is going to happen is that those same consumers are going to go back to Groupon and wait for the next 50%-off sale.”
I’m sure many of you have used Groupon, Living Social or one of the other local daily deal sites. Of those of you who have, how many of you have returned to that business to purchase the same product or service at full price? My guess is not many.
The trouble with only focusing on new customers is that it costs much more to the business to market to new customers than to sell to current customers. A business is also sacrificing its profitability on sales to new customers using a Groupon offer since the business splits about 50% of the revenue with the company.
Filippo Caffari, owner of The Butcher Store, a restaurant in Minneapolis, Minnesota, was quoted in BusinessWeek saying that when using Groupon “A lot of people just come for the deal, and very few become repeat customers.”
In The Wall Street Journal, David Wachs, president of Cellit, a marketing firm that has collaborated with small businesses on Groupon deals, argues that small companies need “ongoing conversations” with customers, not coupon offers. Groupon is best used “to drive new customers in their door.” He’s right about the necessity of ongoing conversations with customers. In order to be a worthwhile marketing tool, business owners need to capitalize on the Groupon or other deal tool. Ask customers to leave their email address when they redeem their deal and contact them with additional coupons, invite them to follow the company’s Facebook or Twitter, and share news about new products and services that would be of interest to them.
With Groupon and other deal sites, a business is reducing profitability as it markets to new customers and by using the deal alone, they are unable to build a relationship with these new customers for repeat business. When considering Groupon as a marketing tool, a business should first evaluate the effect on its profitability, brand and relationship with customers before joining in the daily deal trend.
Ed Samide is a Senior Account Manager at Domus, Inc., a marketing communications agency based in Philadelphia. For more information, visit http://www.domusinc.com. For new business inquiries, please contact CEO and founder of Domus, Inc. Betty Tuppeny at firstname.lastname@example.org or 215-772-2805.