Part 2 of the Retail TouchPoints Daily Deal Update
In light of economic uncertainty, consumers are tapping into daily deal sites such as Groupon and LivingSocial to obtain special offers on merchandise, vacations, meals and even salon services such as massages and manicures. While the deal itself piques consumer interest, sites limit coupon availability to a maximum of two days to increase purchase urgency. It is vital that retailers stand out by offering incentives to extend the reach of their brands and merchandise to keep pace with consumers’ thrifty spending techniques.
The recent departure of Facebook and Yelp from the space sparked debate regarding the future of daily deals, but research reveals that consumer interest in digital couponing is rising consistently. Some merchants have collaborated with outside distributors to release localized offers and specials. However, retailers such as Bloomingdale’s and Neiman Marcus opted to roll out deal programs on their own.
To maximize consumer awareness and boost purchases via daily deals, retailers must connect with their target consumer base, according to Emily Keye, Marketing Strategist for Bronto Software.
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Keye provided several best practices to optimize discounting/couponing tactics, including:
- Make timing a priority: For optimal clickthroughs and purchases, retailers must track and analyze when they receive the best opens and response rates, and the timeframes that drive the most sales. Once a pattern develops, retailers can establish a consistent daily deal model.
- Think beyond “age, gender and location:” Retailers can tap into their CRM and opt-in databases to obtain information on consumers beyond general segments like “age, gender and location.” Moreover, by moving beyond basic information, retailers can segment offers and specials to specific consumers based on their preferences.
- Create a unique VIP experience: Special contests via Facebook, Twitter and SMS make shoppers feel as if they’re accessing exclusive information. Invitation-only sales that last for a limited time also allow retailers to boost urgency purchases.
While increased purchase rates are a primary benefit of daily deals, retailers also must focus on creating a memorable customer experience, according to Keye. “With the current competition among daily deal sites, retailers must work on cultivating a great relationship with customers and subscribers so they continue to come back deal after deal,” she said. “Retailers should consider strategies such as loyalty and rewards programs, and incentives to share deals. These are great ways to fire-up subscribers to become advocates for brands and value the deals retailers have to offer.”
Issues With Deal Redemption Spark Merchant Concern
Despite strong consumer response to daily deals, certain deal providers are under fire following reports of negative customer experiences. For example, Groupon recently was scrutinized after California residents weren’t picked up from an advertised round trip, luxury bus ride to Las Vegas. Deal buyers were left stranded on the Vegas strip for five hours. Localized business owners also have reported negative effects of daily deal campaigns.
In September 2010, Jessie Burke, owner of Posies Bakery and Café in Portland, Ore., spotlighted the negative implications of digital couponing by sharing her negative experience with Groupon. Though Burke saw the benefits of digital offers after a neighboring pizzeria released a Groupon offer and significantly increased traffic and income, she noted multiple struggles in the deployment process.
“We were going to offer a ‘pay $6, get $13 worth of product’ coupon because John [the salesperson] told me people really respond to deals that are more than 50% discount,” Burke explained in an in-depth blog post about the experience. “However, John told me that when the consumer pays less than $10, Groupon usually takes 100% of the money. He reassured me that most customers buy more than the $13, and that we would never have to advertise again after taking advantage of the Groupon network.”
Posies Bakery and Cafe succeeded in gaining an influx of new customers and tallied nearly 1,000 Groupon purchases. But the business suffered when it couldn’t serve loyal customers due to minimal inventory and large lines. Many new customers also tried to beat the system by using their Groupon multiple times, according to Burke. “After three months of Groupons coming through the door, I started to see the results really hurting us financially,” she noted. “There came a time when we literally could not make payroll because at that point we had lost nearly $8,000 with our Groupon campaign. It was sickening, especially after our sales had been rising.”
As the debate over the efficiency of daily deals continues to develop, many authors and retail analysts are forewarning business owners who believe coupons and discounts are a quick fix for success.
“The danger is we’ve disregarded loyalty to repeat customers in the attempt at trial,” explained Bob Phibbs, CEO of The Retail Doctor and author of Groupon: Why Deep Discounts Are Bad For Business. “It’s as if we care more about the wedding than the marriage. That’s dangerous because small business owners — the least able to weather deep discounts — still see the benefits on company web sites and think they should try it without looking at the unforeseen consequences.”
Retailers should focus on establishing their brands and building relationships with target consumers rather than reaching out to deal-seeking buyers, according to Phibbs. “Retailers that spend their time building their brands need to look at all of the consequences, from being commoditized into just the deal of the week for a spa, gym, or restaurant, to the reported lack of loyalty to come back without further discounting,” he said.
Conclusion: Daily Deal Distributors Continue To Thrive
Despite numerous reports of daily deals gone wrong, Groupon and LivingSocial remain leaders in the space and continue to successfully roll out new initiatives.
Although Groupon made headlines when it announced its plans for an initial public offering (IPO) in June 2011, the company amended its paperwork for the third time in September 2011 to separate its gross billings (the amount the company collects) from its net revenue, according to Business Insider. However, the company made market headway with the October 2011 release of its new loyalty program, Groupon Rewards. The program is designed to allow consumers to earn rewards when they make purchases at participating locations via the credit or debit card on file at Groupon.com.
“What’s exciting about Rewards is how easy it is for both merchants and consumers,” said Mihir Shah, VP and GM for Groupon, in a company announcement. “As a shopper, you don’t have to worry about a loyalty card or remembering to check in — we do all the work behind the scenes. As a merchant, Rewards works with your existing POS system to help you track redemption and ROI while incentivizing future purchases.”
In September 2011, LivingSocial announced its expansion into Spokane, Wash., Suffolk County, N.Y. and Utah County, Utah, among other areas. Currently the Washington-based company has more than 45 million members in 25 countries. Also, the company began preparations for an IPO in July 2011, citing Deutsche Bank, JPMorgan Case and Bank of America Merrill Lynch as underwriters, according to The New York Times. Reports from Bloomberg indicate the company may raise approximately $200 million in private funding rather than moving forward with an IPO. .
Consumer adoption and purchase rates will continue to rise as daily deal and digital couponing companies consistently develop, according to a study from Rice and Cornell universities. The study, titled “Daily Deal Fatigue or Unabated Enthusiasm?” indicated that only 2.8% of heavy and experienced deal redeemers said they grew tired of the sites over time.
Though these results show growth potential for retailers that utilize incentives to drive purchases, the study also spotlights the growth of deal-seeking consumers that focus on price more than shopping experiences. “The big challenge for retailers is to determine whether daily deals create new customers or if it increases the likelihood that people will make purchases only when they’re getting discounts,” said Larry Freed, CEO of ForeSee Results.
Merchants believe that leveraging daily deals will continually turn one-time buyers into loyal customers. Regardless of these expectations, the opposite is more likely to occur, according to Phibbs. “The appeal is the ‘hope’ that a retailer will get a flood of new customers who will return again and again,” he explained. “The reality is there is never a shortage of cheap people feeling smart because they didn’t pay retail.”
