|The Daily Deal Emperor Has No Clothes
By: Andrew Davis
“Coupons for the spa drew women from around the metropolitan area eager to see their bulges melt and their wrinkles removed,” reads a New York Times article. “Once.” The article, detailing the rise — and, subsequent waning—- of coupon sites like Groupon, features a New York spa called Wellpath who tried to use the service to drive customers into their business. Unfortunately, the results were a story all too familiar (and predictable).
“Then they would get another coupon and go do it with someone else,” Wellpath’s director, Jennifer Bengel, told the Times. “There was no loyalty.”
No loyalty? No surprise.
Groupon is in trouble, and not because the rise of localized, competitor brands has already begun to take a huge chunk from Groupon’s market share. More and more businesses are learning just how disastrous daily deals can be for their bottom line. “We’re giving [customers] a discount when we could be filling that seat with a full-paying customer,” Arlington, Virginia pizzeria co-owner Joel Mehr tells ARLnow.com. “If we are giving discounts when we don’t need to be giving discounts, that doesn’t benefit us.”
Mehr says that despite selling more than 5,600 Groupon deals for his restaurants in the area, the pizzeria still lacks name recognition. Worst of all, they can’t control when customers come because the deals can be used anytime. “We are seeing people come in one time only, on a Friday night, they’re not coming back,” says Mehr, echoing a common theme among disgruntled Groupon users.
However, the discount emperor, Groupon, isn’t the one at fault. While Groupon has its own internal problems, from a business model that has investors worried to its new-found appetite for line-extensions (Groupon Now!, Groupon Getaways, Groupon Goods), it can’t be blamed for customer loyalty issues. When businesses use discounts and deals, loyalty issues are right around the corner.
Discounts are not a permission slip to excuse oneself from brand-building strategies, nor are they a panacea for driving business through the doors. Businesses that use deal sites as a marketing device can quickly find themselves drowning in customers who are only looking for one-off purchases at a discount price. One owner called using Groupon the “single worst decision I have ever made as a business owner thus far,” after the deal nearly put them out of business.
Yes, Groupon can help businesses find new customers, but the very nature of discounting undermines customer loyalty — especially when driven by daily deal sites. And, even more so when businesses aren’t prepared to convert new “discount” customers into loyal “full price” customers.
For example, oil changes are one common deal on Groupon, and they come from a variety of businesses. It isn’t out of the question that a Groupon deal for an oil change will come about frequently enough where a subscriber would never have to pay full price for an oil change, if he were to use the deals that came about every so often on the site. Therefore, the subscriber never establishes a bond with any of the businesses that advertise on the site — especially if those businesses have not put effort into retaining new customers.
Daily deal sites should be regarded with a huge caveat emptor for businesses looking to use them. There have been a number of success stories, but on the other hand, they can absolutely ruin a brand — as they have, and they will continue to do.
Discounting in and of itself isn't a brand killer. Just look at major department stores, which have opted for discount strategies instead of brand strategies. Rather than rushing to discounting sites for growing businesses, focus on building the brand through good branding fundamentals. It may take a little longer, but in the end, brand integrity is improved — not diminished.
On a side note, I would be remiss if I didn’t note the unfortunate passing of Apple Co-Founder Steve Jobs. The death of genius is truly like extinguishing a candle. The world is less bright without him around.
is a Charleston, SC-based creative services consultant to small businesses and non-profits. Follow him on Twitter here