Groupon…as part of a loyalty program? The Daily Dealer May be on to Something
Posted by HubSpot Administrator on Thu, Jun 16, 2011
By Mark Johnson
President & CEO, Loyalty 360
The meteoric rise of Groupon is certainly evident in its recent announcement of an IPO. To think, just a few short years ago the notion of “group couponing” was simply that – a notion.
But as Groupon, LivingSocial, OyWhatADeal, Facebook and others are attempting to transform the couponing world, one has to wonder: Are businesses benefitting? I would argue they are not benefitting, and that they are not creating a tribe of loyal / engaged members. Repeat purchases at high margins, less couponing and returns as well as impulse buys, and targeted manufacture coupons developed in conjunction with the grocer or drug outlet, are the keys to success. This information creates a highly discerning data set that can be gleaned for actionable information and insight.
Sure, businesses of all sizes have eagerly embraced these discount services because of their ability to attract new customers. Yet, at what cost? And, is Groupon creating a buying mentality that consumers will ONLY purchase from certain groups when offered a substantial discount and never without. Are these customers simply a flash in the pan? After all, it’s one thing to acquire new customers…. and quite another to engage, retain and make them loyal.
A 2010 study by Rice University's Jesse H. Jones Graduate School of Business finds that 32% of businesses don't make money from Groupon promotions – with more than 40% of the respondents indicating they would not run such a promotion again. Why? Because Groupon consumers don't make return visits or spend as much money as the broader customer base.
Groupon’s just announced move into “Groupon Groceries” is a strategic move to remedy these issues and position itself as a value-add for businesses. Groupon Groceries works like regular Groupon but with a special twist – loyalty cards.
As Crain’s Chicago Business explains, Groupon has partnered with Springfield, MA-based grocer Big Y Foods to offer Groupons for groceries. But instead of relying on paper coupons or mobile phones, as with other Groupons, these customers will use their grocery-store loyalty cards. So Groupon will send out the discounts, but customers who buy them will get the discount credited to their loyalty card when they check out.
Connecting Groupon to loyalty cards will potentially enable companies to track customer buying behavior beyond the offer – helping them gauge if the deal really does lead to additional sales and help drive loyalty. Yet, I question this as well. Is someone loyal to a brand when it is offered at a 50% discount? And, if they are loyal, do you have to make an offer? I am loyal to my wife’s BMW, but if someone offered me a 50% discount on a Mercedes SLK I would for SURE jump on that deal. Yet, I am not sure it would be profitable for Mercedes, and I am not sure I would buy another. Therefore, it created a DISINCENTIVE FOR LOYALTY.
Unless the discounts asked of merchants come down, it will not be financially feasible for Groupon to exist. The end users want to have customers with whom they can have long-term, PROFITABLE relationships; Groupon and the other daily deal sites preclude that. They are creating a behavior that is not going to impact the bottom line in a positive manner for a majority of the retailers.
We also learned last week, that during their IPO, Groupon lost over $400 million on revenue of over $700 million, and it was mentioned in the Wall Street Journal that their growth rate is slowing in the markets they have already saturated. And although they have been a boon for the mom and pop customers, offering them marketing services and strategies they would not have had access to in the past, it is the large and medium size players that will keep Groupon in business.
In the daily coupon world, I think moving in this direction is imperative for Groupon’s success. While any business has to deliver superior service and an engaging experience to keep customers coming back, getting loyalty from deal-conscious consumers is an ongoing challenge.