Monday’s Musings: Mastering When and How High End Brands Should Use Daily Deal Sites Such As Groupon

Published on April 4, 2011 by R "Ray" Wang


Daily Deal Sites Claim To Bring New Customers

Chicago, Illinois based Groupon, is a consumer oriented commerce site that brings consumers looking for the ultimate deal to businesses seeking new customer bases.  Local based targeting, fun cheeky copy, and a reach in almost 600 cities powers the frenzy behind the “daily deals”.   Customers pay upfront.  Groupon takes 40 to 50% of the deal.  Businesses  supposedly gain new customers.  Other start-up competitors in the digital coupon “daily deal” space include Bloomsot, BuyWithMe, LivingSocial, Scoutmob, and Tippr. Established brands Google, Facebook, Microsoft, OpenTable, Yahoo!, and Yelp all have similar offerings in play or planned.  The idea makes sense at first on a few counts for businesses with:

  • Immediate inventory items. Perishable food items, overstocked goods, closeout merchandise.
  • Unused service capacity. Unbooked hotel rooms, open spa appointments, down time at a bar.
  • Instant gratification offers. Quick promotions, fast deals, quick foot traffic.

However, Most Orgs Face Massive Pricing And Brand Dilution

After talking to over 50 high end, high profit customers, we’ve unveiled a growing resentment with how the current model works.  Despite the advertised 95% of merchants who’d use Groupon again stats, the numbers fail to tell the story.  In fact, the top three complaints we personally heard in our informal 51 high end organization survey include:

  • Brand value dilution. The novelty and brand promise not appreciated by new customers.  Brand value not fully communicated or achieved by customers.
  • Downward price pressure. Overall perception on pricing trends downward due to lack of scarcity.  Customers now see a new price for an existing luxury service.
  • Loss of profitability among existing customer base.  Existing profitable customers wait for deals instead of pay full price.  Loyal customers feel cheated.

The Bottom Line:  Use The Customer Profitability Matrix To Determine Your Strategy

So the question is when and how should high end brands use daily deal sites?  Well, we’ve introduced this customer profitability matrix as a quick way to identify which strategy makes sense.

  • Loyal profitables. These are your best customers. They get the brand promise and they are your avid evangelists.  You want to offer them your own daily deal sites outside of Groupon or a closed version of Groupon.  The trick is to focus on exclusive deals and rewards for loyalty.  Liberally apply gamification models for success.
  • High potentials. These are your best prospects.  They need to be introduced to you.  Your offers must be designed to be aspirational and invitational.  Offers based on price will devalue your brand promise.  Use Groupon to bring an exclusive invitation to play, not a value based deal.  Keep pricing parity but use an “invite a friend” offer to join.
  • Bargain hunters. These are your existing customers who only buy when a sale or discounted offer occurs. These customers latch on to sites like Groupon and destroy profitability and brand value.  Avoid using Groupon to attract any more of these customers.  More importantly, understand how to influence this base to mature into Loyal Profitables or politely fire these customers. Apply Groupon offers to bringing a friend in and appealing to the value equation.  Leverage the analytics. Limit the frequency to keep a sporadic cadence of offers and balance out profitability.
  • Brand killers. These customers do not represent the brand value but occasionally experiment to associate with high end brands.  Sites such as Groupon often bring new prospects but fail to filter out brand killers.  Avoid running severely discounted offers without filtering.  Leverage analytics from past offers to learn from mistakes.

At the end of the day, significant value can be gained from Groupon like services.  However, these services should be offered first as a reward to loyal customers. Deliver these to customers as exclusive offers.  Engaging in a price war just to get buzz will most likely result in brand value dilution, downward pressure, and lower profitability.  Don’t just follow the fad.  Be smart, pragmatic, and strategic in your offers.

Your POV.

Does this strategy make sense? Will you change how you use Groupon? Now ready to put your own daily deal site to use? Ready to share your best practices?  Add your comments to the blog or reach me via email: R (at) ConstellationRG (dot) com or R (at) SoftwareInsider (dot) com.

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Copyright © 2011 R Wang and Insider Associates, LLC All rights reserved.

  • Mark – Drucker rules. We need accurate data and Groupon doesn’t yet provide this capability but someone will surely do so. What do others think? – Ray

  • William – Great seeing you here in Boston. thanks for the comment. it’s been crazy how people have been killing their brands with these sites. A smarter usage will come with experience as we’re starting to see. What do others think? – Ray

  • Glad to finally see a critical and constructive post about these daily deal sites. Honestly, I’m amazed at how Groupon has been able to grow. Because of some of the limitations you listed above as well as a few others, I don’t think they will be able to sustain this growth. I actually think the whole model is not sustainable, although I realize I’m in the minority on that. The deals they offer just aren’t good enough, and even when a consumer sets their preferences, often they have nothing to do with their interests. I think the Bargain Hunters and Brand Killers will kill these sites.

  • Hey Ray,

    As Drucker says “The purpose of business is to create and keep a customer”. In the case of Groupon you would attract new customers, but not the ones that you will likely keep, due to the nature of the reason they come and go – forever chasing the best bargain without necesarily returning after the deal is not longer available.

    Making the case for offering Groupon-like services first as a reward to loyal customers doesn’t make much sense either, as it would be more cost-effective to run your own loyalty programme where you can maintain healthy margins as well as glean insights from data that you manage rather than a third party. Groupon does not add value in this case.

    With regards to the brand killers category, my question would be about how much data you’d get from Groupon (like) that will allow you to effectively identify and filter out these thru analytics.

    Cheers,
    Mark

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