Friday, August 19, 2011

Why Groupon WON’T Save Your Company

Current economic environment notwithstanding, most consumers are attracted by ways to save money - not in their bank account, but on stuff - because they are going to spend. Businesses, naturally, oblige by offering “deals,” the growth of which has exploded thanks to Groupon, LivingSocial, Daily Deal and the dozens of other wannabes. Of course, the growing number of daily deals appeal to our human nature – getting the best offer before the next person does. One doesn’t have to be a coupon hoarder or penny pincher to fall in that category, and Groupon has been most “helpful” in transforming so many of us into online deal hunters.

In less than a year, the “Groupon experience” has become incredibly popular with retailers and restaurants trying solicit new customers and get the cash register ca-chinging again. But if they expect a lot of these new customers to jump all over non-Groupon prices after paying heavily discounted rates at the start of the relationship, they are delusional and tragically mistaken.

Last month, I posted a comment on a Loyalty group I’m a member of on LinkedIn:

“While relatively innovative, Groupon is not a company that helps brands build loyalty. Because Groupon offers consumers discounted goods/services from an ever-changing variety of companies, it inherently encourages consumers to purchase a scattershot of different items, driven by heavy discounts offered during a short timetable - not through developing brand loyalty. The process works against loyalty because it drives consumers to try many new brands – rather than sticking with one brand consistently - all on a single factor. Price. Groupon essentially says to consumers, why stick with the usual go-to salon/restaurant/bookstore when you can try this coupon for another, different company that's much cheaper than what you're probably paying? Companies may increase business by using Groupon to bring in new consumers who might not normally try their brand, but in terms of encouraging long-term brand loyalty the service simply isn’t equipped to offer real results. I've always argued that when marketers go down the discount highway, it's almost impossible to turn back around. Think about it... it's highly unlikely that a consumer making a purchase decision based on a percentage discount from an unknown retailer/brand will return to that retailer/brand for "non-Groupon" prices. Why would they? Instead, they'll simply look for the next bargain delivered by Groupon from yet another retailer/brand... and so on.”

That discussion is gaining a lot of traction as the “Great Groupon Debate” is argued among retail marketers and business reporters alike:

- Bryon Morrison, president of The Marketing Arm's wireless practice discusses the cons of Groupon in his article featured in Mobile Commerce Daily Countering the Groupon effect and linking tactics to strategy
- And Fred Minnick, writing for Stores, asks if daily deal sites good or bad for retail in his article “The Great Groupon Debate”

In a recent Slate feature, Noreen Malone lived off Groupon for a week. There was a lot of effort involved (20-minute walks each way for a coffee shop? No thanks.) and a little pressure (don't forget your coupon!), and Malone noted that it's also an easy way to be blinded by the deals: “We might not know, sitting in our cubicles, that we want these things—but take 50 percent off the sticker price, and suddenly we do,” she said.

And that's the trouble with Groupon. In a social deals-type environment, we look at sticker price, not at brand value. Groupon is less about the brand, more about the price. Why go back and pay full rates if you're always presented with something new—and that deal you grabbed wasn't even nearby?

Yes, we are even willing to go out of our way for a good deal, but will we return to the same place when we don't have a chance at a discount? Fat chance. In a recent survey by Cooper Murphy Copywriters, 82 percent of companies that had Groupon promotions in the past said that they were unhappy with the level of repeat business they received after running their promotion.

To continue Groupon momentum, a company might consider another deal, and another one... and they're continuing that cycle of margin giveaways in the process, not to mention alienating loyal customers who have been paying standard prices for months or even years. With an influx of new customers waving deals, will the regulars have the same level of service, the same experience?

It's better to concentrate on customer connections in the long run. Keeping costs low for all buyers—not just the Groupon set—will ensure repeat customers. Specialized pricing and competitive edge can hook new clients, but how can we keep customers coming back? is a better question than how low can prices go this month?

There is no quick fix to finding new customers – any marketer worth their grain in salt will tell you. The experiences that consumers are having with Groupon like not being able to redeem coupons for 4+ months (personal story that I’ll share with you next week) or finding out that the deals are only available at very limited times will and work against Groupon, the business and their brand.

My advice? Treat Groupon and its ilk with caution and think about long term ways to connect with customers to build profits – not give away margins and alienate existing customers through deep discounts.

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