Retail Customer Experience: Groupon Responds – 95 Percent of Merchants Would Do It Again
By James Bickers, Editor
Through a special arrangement, presented here for
discussion is a summary of a current article from Retail Customer Experience,
a daily news portal devoted to helping retailers differentiate the shopping
experience.
Groupon contends only a “small minority” of companies
using its daily-deal service have lost money on an event. Indeed, a poll of
3,000 merchants who used the service found that more than 95 percent wanted
to work with Groupon again or would recommend the service to another business.
Speaking
to Retail Customer Experience, Julie Ann Mossler, Groupon’s
PR and consumer marketing manager, said Groupon typically offers a discount
of 45 to 90 percent off on one daily deal in more than 250 markets.
“The whole idea is built on the concept of collective buying,” said
Ms. Mossler. “So we get a group of customers together and we approach
a business and say, ‘At what number of customers would it be worth it to you
to offer 60 percent or 70 percent off?’ And for some people that answer is
five, while for some others its 100 or more. We work with the merchant and
say, ‘If we secure 100 customers, then everyone gets the deal.’”
Being
able to cap a deal provides merchants a protection against losses.
“That’s always been an option, and I think we’re becoming a little bit
more vigilant in talking to the business and recommending that they do that,” said
Ms. Mossler. “It’s always been a tough position for us to be in, because
it’s hard to say to a business, ‘You’re telling us that you can handle 1,000
customers — No, you can’t.’ It’s almost insulting to say that to a merchant.
So we do our best to work with them and look at the business and say, ‘Okay,
if you have five salon chairs, you can probably handle 600 customers within
the year.’”
Responding to claims that customers are only being trained
to buy on discount, Ms. Mossler said businesses will be featured more than
once but only several months after the last daily-deal event.
“Because of that, these businesses are seeing Groupon as a way to do
something special for their customers, or a way to reach more,” she said. “But
it’s not something that’s done on a regular basis, and I think customers know
that.”
She also said 88 percent of the 3,000 merchants polled agreed
that “Groupon
brought in quality new customers.” Another 81.5 percent agreed “Groupon
customers are likely to become repeat customers.”
“When was the last time someone placed an ad on the radio or a billboard
and said, ‘Wow, I got 80 percent new customers from that ad.’ Things
like that aren’t even trackable,” said Ms. Mossler. “This is a concrete
way to ensure that these people are actually coming through your door.”
Discussion Questions: What do you make of Groupon’s argument for the service
it offers to merchants? Do you think daily deal services train customers
to look for discounts more or less than other forms of promotion?
[RetailWire editorial comment]Â A RetailWire poll in April found
that 21 percent of respondents believed Groupon to be a “large” opportunity
for retailers, 34 percent felt it was a “medium” opportunity, 34
percent believed it was a “small” opportunity and 10 percent were “not
sure.”
This is yet another PR story that glorifies Groupon. How to square that with the recent Rice University study of 150 merchants where 40 percent of respondents said they would not run such a promotion again vs. Groupon’s claim it is twice that?
I believe small businesses are deluding themselves saying Groupon customers are “likely to become repeat customers.” If I can purchase $125 worth of product for $45, why would I ever pay $125 again? I’ll wait. Meanwhile as these sites grow, they undermine the very stores and services rushing to sign up to become commodities.
A telling comment on Groupon comes from www.merchantrock.com. “As a consumer who has used Groupon, I can tell you that Groupon doesn’t alter my loyalty. In fact, I only buy Groupons for places that I already purchase from. These firms are not only losing money on the products they provide through Groupon, but they are losing money on the opportunity cost to have me pay full price, which I would have done otherwise.”
I hope you will read my full 11-part series on the subject and weigh in there.
Just because retailers *believe* they got value from their Groupon and say they are willing to run another one does not mean that they are correct. Many of the retailers who run Groupon programs are smaller and less sophisticated, and they often don’t have programs for tracking shoppers over time.
I’d like to see a study of retailers with loyalty programs who run Groupon offers that answers questions such as:
– How many new customers redeemed the Groupon vs. existing customers?
– For existing customers who redeemed the Groupon, how did their spending change *after* the event vs. before (and how do those numbers compare to similar but non-Groupon-redeeming shoppers)?
– What percentage of new shoppers from the Groupon event continue to buy, and how do they compare to existing customers?
– How long do Groupon customers keep shopping?
Don’t get me wrong, I think Groupon has a brilliant business model and has figured out how to dramatically move the needle for retailers. And it may work very well for some retailers. I just worry that as a customer acquisition and retention tool, its true value may be lost amidst all the hype.
Consumers are looking for deals, merchants are looking or customers and Groupon brings them together. It’s not realistic to expect that Groupon will please every merchant that places a consumer offer. Like it or not, discount buying sites are here to stay. From Groupon to Living Social to Next Jump, to Gilt, consumers are flocking to these sites and spending millions of dollars per day to buy their deals. If they weren’t giving consumers what they want, consumers would not be buying.
This model is a win-win for customers and retailers alike. It provides retailers a way to minimize risk, increase utilization (services) and drive traffic resulting in new customers and market baskets that include non-discounted items. That has value for retailers and they are effectively passing on some of the value they receive to the consumer in reduced pricing.
Expect to see many, many, many more of these group buying type offerings, especially as we become increasingly socially networked.
With a glut of retail selling space and a weak economy, the only vehicle for growth (if not survival) is growing market share through new customers. Count me as a supporter of Groupon. This is a great way for small- to medium-size retailers to stand out in the crowd and acquire new customers. As far as the implications of margin erosion from a one-shot spike in non-profitable promotional sales, how many retailers incur large costs on radio/TV/ROP for which there is no return?
There is an excellent analysis by Sam Decker at http://bit.ly/b1Ncv1 that takes this to an excruciating level of detail. It’s well worth the read.
Groupon didn’t invent discounting. They’ve just digitized it. And the businesses they tend to work with predominantly are smaller businesses that can benefit from the one-time exposure and customer acquisition. No one has ever positioned Groupon as a stand-alone marketing strategy.
Frankly I think we’ve made way too much of this already. There are far more exciting things happening that deserve our attention.
I’m with Bob on this one. Groupon, et al, flourish during recessions and make retailers feel good because the phone is ringing, and people are buying. But at what cost? Slashing prices 60 to 70 percent can’t be good for margin, and makes me think of the old joke “We’ll lose a little on each one but we’ll make it up in volume!”
The real shame here is that these mostly small businesses who buy into the strategy of discounting to acquire new customers are doing irreparable damage to their brand. Unless you’re Walmart you want to be known for something else besides low price.
There are plenty of ways to attract new business other than giving it away. If you feel you must discount, have a sale, or use coupons and cash back rewards as a terrific way to reward your most loyal customers. In the long run the best idea for business in any economy is to know who your customers are and spend your money making every interaction with them great and memorable. Because if you don’t make them feel good about your products and services somebody else will and no amount of discounting will save you.
Most retailers and restaurant owners are missing the point with Groupon. Groupon is not going to bring you more long-term loyal customers, instead they are going to bring you new people walking through their doors. The long-term loyalty has to be earned by the retailer. Loyalty does not walk through the door.
Groupon, at its best, is a sampling program. Getting people to become long-term customers has more to do with the quality of the product and quality of service, not the quality of the customer.
I sense some resistance here! Retail history shows us that really smart marketers and merchants from Wannamaker to Bezos will figure out ways to innovate how consumers buy. And then it’s up to retailers that don’t do that very well to adjust and either join them, figure out how to beat them, or go out of business. Dealing with Groupon is no different.
Sam Walton is famous for saying, “it’s easy to compete with us, just do what we don’t.” That should be the mantra for all the “Groupon-Haters” as well.
Groupon injects a little bit of fun for shoppers by delivering a little surprise each morning. I signed up a few weeks ago, and although I have yet to feel a need to redeem an offer, I can see why consumers enjoy it.
Retailers–especially local ones–can trade on the novelty of the program to create awareness and generate some new traffic. Yes, it comes at the expense of some margin sacrifice when habitual shoppers also redeem the offers, but the damage is fairly contained.
Unlike some other commentators, I don’t really believe a one-off deep discount causes existing shoppers to shift their value perception about the merchant.
That’s not to say an event can’t lose money for the retailer. Groupon sales counselors would do well to provide an ROI forecasting tool that lets participating businesses set sensible parameters for its offers. A measure of CRM impact would be a welcome component of this.
I’d agree with James that a one-off deep discount doesn’t change the customer’s perception about the merchant. I’m a frequent Groupon buyer, and I have started using new restaurants and stores as a result. I will also say that very few of them maximized their opportunity to win me as a customer either. It wasn’t Groupon’s fault, it was the merchants.
A couple weekends ago I met an independent retailer who has been in business for over 20-years that was getting ready to go live with Groupon in two days. This woman had done all the research, ran all of the numbers, and she believed that it was going to be successful. To her credit, she also assessed the risk if it didn’t work out either.
Is Groupon for everyone? Not at all. Just like pay-per-click, live radio events, and other marketing events aren’t for everyone either. Like the retailer above, retailers should assess their opportunities, their risk, and then decide what’s best for them.
Groupon is a great way for a small business, chain, or store to generate awareness in a community and to offer loyal customers a discount. I’m wary of what it does for a company like The Gap. Large retailers already have platforms to offer deals to segments of their existing customer base, should they choose to do so. Further, the Groupon community isn’t particularly well segmented to offer any advantage in pulling in new customers vs. any untargeted offers that the retailer could put out there themselves. The ability to require a minimum response rate or to cap the offer doesn’t really do anything for a large retailer in terms of limiting liability or creating a sweet spot of generating profitability from the campaign.
Groupon is still great, and if you’re small you should consider using them, but they just don’t add anything meaningful for larger players. The GAP got some good press using them the first time, but in the long term I don’t see other large box retailers jumping on board.
Retailers have no idea whether Groupon traffic is incremental or not. None. The survey data quoted above is not meaningful.
By the way, the contrast to traditional media is interesting, because those retailers that are large enough to test radio, into-mailbox print, newspaper inserts, TV, search ads, etc, do actually know what traffic is incremental. But I doubt anyone has rigorously tested Groupon yet (if anyone is interested, let me know!).
Groupon merely reinforces the notion that value must be denominated in dollars. For independent retailers, this is a very dangerous fallacy. Volume built on discounting and short margins quickly leads to serious cash flow problems. The sales look seductive in the short term but all too often does significant long term damage to the integrity of the business.
For independent retailers, value has to be built on far more solid ground than price. If you are an independent retailer, think of the most compelling independent retailer in your area, regardless of category, whether they are a competitor or not. What is it that makes them unique and compelling? What is it about them that causes their parking lot to be full? In almost every case, the thing that makes them so successful will be something other than price.
And they won’t be part of Groupon.
I think that Groupon probably benefits shoppers more than it benefits retailers. Or at least most retailers. Shoppers who want deals are hunting for bargains online. If a merchant is on Groupon, that shopper is likely to find the deal.
Does it work for the retailer? Well, I agree, at best it’s a sampling program. At worst, it simply rewards current users at a discount that probably bites into the store’s profit. So why would a retailer do it again? Well, small business owners are hurting right now. Anything to keep traffic coming in the door is perceived as good. Even if that’s more of an emotional “feel good” for the shopkeeper, than a reality his bookkeeper acknowledges.
Groupon users seem very satisfied with the service so it is certainly in the best interest of retailers to invest some time to find out if their customers desire these services, especially small chains or single-store owners. Anything that can help a company gain an edge is worth looking at.
Remember this in the ’60s? A group of families pooled together and bought bulk food. Many food Co-Ops started this way.
For merchants with a real need for new business and highly elastic customers, Groupon is a great intersection. Like a lot of paid media, the way that marketers measure ROI and incrementality is highly suspect, so it works to everyone’s satisfaction.
It will be interesting to see if Gap returns to Groupon after their logo debacle, which was probably just as profitable for them as their Groupon campaign!
Groupon advantages for smaller merchants are the ability to offer a measurable promotion to a wide audience with reasonably little risk if the promo is structured with reasonable limitations.
My interest is in how Groupon has garnered so much attention when the #2 player, Living Social has (in my local area) better merchant quality. The real secret to uncover here is how Groupon became so popular so quickly…and why that same enthusiasm has not spread to other similar schemes.