2/27/2012 1:59 PM ET|
What's wrong with daily deal sites
Consumers may be feeling some disenchantment with Groupon, LivingSocial and similar sites, but you can improve your experience with them while benefiting local businesses.
Groupon and rivals like LivingSocial, Google Offers and other daily deal sites that broker goods and services at deep initial discounts aim to help businesses get new customers in the door, again and again. It's a fairly straightforward formula that works on many levels; just look at the rivals that have cropped up to challenge early leader Groupon.
But the appeal of the deal is clearly wearing off for some consumers. In my experience, sales staff increasingly let their annoyance at handling the conditional coupons slip out. Ever notice the changed tone of the receptionist making the massage appointment once you declare "I have a Groupon"?
Businesses are getting better, it seems, at isolating those newbie patrons who send the signal that they're not returning anytime soon without the markdown. But proprietor frustration is sometimes taken out on other good-intentioned and curious daily deal users who truly want a lower-cost trial run as they sip sake or tie up their tap shoes for the first time. They're begging to be courted.
In another turn, established customers at hair salons and corner restaurants are finding that the coupon-only crowds sometimes ruin the quality of experience that regulars have come to expect; the flash of new appointments and reservations can scuttle the scheduling or walk-in ease they're used to. They may go elsewhere.
In an era where brick-and-mortar businesses must compete with online rivals, stellar customer service is becoming a rarity and yet may be more important than ever. How can businesses hope to gain repeat traffic as the deal buzz wears off and this fast-expanding retail trend moves to its next stage: sustaining customers and the business model for deal middlemen? And as consumers, will we one day be painfully weaned from promotions?
Susquehanna Financial Group and daily deal industry tracking firm Yipit surveyed almost 400 merchants recently about their experiences running daily deals with Groupon, Amazon-backed LivingSocial and other providers.
An average of eight out of 10 merchants said they enjoyed working with daily deal companies. However, the survey also found that 52% of the polled merchants are not planning to feature deals in the next six months, and nearly 24% of the merchants intend to feature only one deal in the next six months. In response, Groupon, which had one of the most notable initial public offerings of 2011, has seen its share price drop below its $20 launch.
"Our proprietary merchant survey highlights concerns of the daily deal sites, and early read implies lower usage over the next six months, despite some surprisingly high satisfaction rates," Herman Leung, an analyst at Susquehanna, wrote in a research note.
Some stories reveal major holes in the daily deals formula. The U.K.'s Telegraph newspaper ran a profile of a British cupcake owner who claimed that a Groupon deal nearly wiped out her business after she had to sell 102,000 cupcakes at a loss.
In my own North Side Chicago neighborhood, cafe Drew's Eatery shuttered in December and pointed the finger at online deals in a statement: "Trying to keep up with our competitors, we began working with the online deals (Groupon, Plum, KGB, LivingSocial, Reward Network, Price Bunch and others). We soon realized that these deals are not what they seem but yet are silent killers and only build false hope. We accept full responsibility, as nobody forced us into Groupon or any other deal. We stopped doing any future deals in October and had hoped we could recover, but it was too late."
Groupon and LivingSocial recently unveiled instant deals, which are targeted to a subscriber's location and usually run for just a few hours. For instance, users might troll for a lunch deal by their office. The survey by Susquehanna and Yipit found that only 10% of merchants polled have considered running an instant deal with Groupon or LivingSocial.
LivingSocial's twist on the process includes the option to share a link to your deal. If three more people bite, your deal is free.
For its part, Groupon has positive testimonials, with some businesses saying they consolidated a half year of expected customer acquisition time into a few days. Theaters have welcomed the opportunity to fill an otherwise half-empty house on some nights, which tends to improve the experience for the actors and the audience. Groupon says it will make right or return any purchase that doesn't meet consumer expectations. Response time has received mixed reviews in social media and retail blogs.
More from U.S. News & World Report:
VIDEO ON MSN MONEY
I am always curious about merchants who say that daily deals have hurt or ruined their businesses. My guess is that they had other issues. Why should this type of promotion be any more harmful or costly than say, advertising? Even the most expensive and sophisticated advertising campaign can fall flat, and merchants get absolutely no guarantee that their ad dollar will produce an actual customer.
Also, shouldn't the difference between the promotional cost of a daily deal unit and the average retail cost be tax deductible like any other ad, promotional, or business building expense? What about people who pay for a deal but don't use it? Do they get their money back? Don't thinks so. For sure the "cheap seats attitude" of many merchants has been so obvious when I've used daily deals that I don't use them much anymore, and merchants now are probably getting fewer real future-customers and more big-game deal hunters because of this.
Obviously, we are "what's wrong" with daily deal sites! The comments from this article are maddening! (see quotes below) Businesses do things to get us in the door and to spend our money but then treat us like $hit when we come in because we have a coupon or discount! As stated below, "Customer Service" is not a rarity it is almost extinct! It is also obvious that some business owners cannot add or subtract when they almost lose their business because of a bad coupon deal!
"In my experience, sales staff increasingly let their annoyance at handling the conditional coupons slip out."
"Businesses are getting better, it seems, at isolating those newbie patrons who send the signal that they're not returning anytime soon without the markdown. But proprietor frustration is sometimes taken out on other good-intentioned and curious daily deal users who truly want a lower-cost trial run..."
"In an era where brick-and-mortar businesses must compete with online rivals, stellar customer service is becoming a rarity..."
"British cupcake owner who claimed that a Groupon deal nearly wiped out her business after she had to sell 102,000 cupcakes at a loss."
Living Social for Group Classes at a very steep discount (~65% off the normal price for a class pack).
217 signed up (which means they paid). 63 used either all or partial punch card (most partial and only 1 or 2 classes). Only THREE (yep THREE out of 217) signed on for a membership. So that means 154 paid for the 'deal' and never used it.
Now the owners are kind of laughing that they they were paid for time sensitive service that will never be redeemed by 154 people. They are also saddened that of the people that did show up there was a steep roll off and a horrible conversion rate.
The interesting thing is that their off the street sign ups are strong and far outpace the Coupon Marketing they did. So it's not a quality issue. I think the thing to figure out if you use a site like Groupon/Living Social is how to either get people to pay but not play or convert them without having to CONTINUOUSLY offer deep incentive (who REALLY wants a sizable contingent of only loyal to the discount customer base?)
Businesses aren't doing this so they can constantly get the bottom of the barrel cheapskate customer, which I would bet properly designed research would most likely agree with. They want customers that are going to build a long term relationship.
I've become very wary of using Groupon. I have had some excellent experiences (personal training, massage, haircut), but an equal number of flops. The flops have been in services such as car detailing (not very thoroughl and damage done to car), bicycle tuneup (clearly hadn't been touched), house cleaning (one oversold and stopped booking until groupons expired, another did very minimal clean), haircut (refused to accept groupon AFTER the haircut). It seems that a substantial number of service businesses count on groupon users not noticing that they are getting a lower level of service (or no service in the case of the bike tuneup) for the lower price.
Yes, I have bought groupons for some things with no intention of becoming a regular customer--for things that would otherwise be out of my budget or a once- in- a- while luxury to me (although one experience was so great that I have put in extra hours at work just to be able to afford it again)-- but the bike shop, salon and cleaning services definitely lost the chance for a regular customer.
What you failed to mention is that for the company offering the groupons daily deals are free advertising, even if one person does not buy the groupon. Companies can limit the number of spots open for the daily deals or offer it to just new customers. Even groupon figures this is a part of advertising. I work with a company advertising painting parties that features groupons and living social deals every couple of months. It does bring in new customers, and the owner breaks even on the deal or slightly over. However, he "up sales" return vouchers (that do not expire) for an on the spot price for his painting parties that can only be purchased the day of the visit. He also sells custom picture frames for the artwork the night of the party. Usually in a group of say 30 customers who have paid to come to a 3 hour painting party there will be 10 repeats bought (all of which goes to him and not half to groupon) and maybe 6 frames of which there is a very nice mark up.
So after awhile, he will have a group of mixed customers, some groupon, and some repeat voucher customers,as well as people who came in paying full price.
Most of the groupon on customers are new. He has two locations, and in a very large city like ours, this has broght people in the store that would never have come. He also gets people back to have personal items framed. Any company wanting to use daily deals has to figure out how to make this kind of advertising work for them, and do the math so they are not offering something that puts them in the hole.
Another Living Social deal was for "fat dissolving" for the face. The owner changed the deal, saying that there are 12 different sections of the face. Also, a doctors note was needed, and "It could be your dentist, gyn, chiro... doesn't matter". I complained to Living Social and got a refund.
Lastly, there was a deal for a massage. It was for $39. I went to the companies website and that was the price of the introductory rate. So, why buy through Groupon/Living Social?
More often than not, I've had positive experiences. Alot of merchants extend the deadline. Alot of merchants don't push more services while redeeming the coupons.
I have never had a problem with Groupon. I buy gifts on there for others (like cameras, photo-related services like a picture on a canvas, cooking classes) as well as things for myself. There's a great deli by my work where I get a Groupon NOW to dine there. I have used a Groupon for a massage, a haircut, a hotel stay in Vegas (saved a lot), and other items that I use frequently. There was one time where I needed to contact customer service and they helped me out right away. I do agree that it has potential for sucking people into things they probably don't have money for or shouldn't buy. Personally, though, I have had zero problems (yet!).
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Financial Information.
Remember when real estate was so hot there were homebuyer lotteries and bidding wars? And people so desperate to buy that they'd make an offer sight-unseen? In some markets, they're back.