It seems that 2012 has been an absolute roller-coaster for daily deal operators, such as Groupon and Living Social. After much hype surrounding the Groupon IPO back in November 2011 at $20 per share, Groupon shares are trading at $4.14 at the time of writing this article.
Even better, when fact-checking this article to confirm what Groupon’s IPO share price was, Google showed me the following advertisement from Groupon:
Sadly, Groupon is going for more than 70% off, as its current price reflects a drop of 79% from its IPO.
I had previously written a bit on how daily deals are not a good way to gain loyal, repeat customers, and that giving such huge discounts to customers (plus also giving high commissions to the daily deal operators) is not a sustainable business practice:
Now that Groupon appears to be in serious financial trouble, financial analysts and commentators are more closely scrutinising the Groupon business model, and are coming to the same conclusions that we’ve held at Ferret Card for quite some time. A good article discussing some of the issues, backed up by merchant survey data is:
The trouble is a combination of both bad customer experience, and merchants failing to see the value of running a Groupon daily deal. These are 2 very different issues, affecting both parties to the transaction.
The above article highlights an example of a typical user experience with a daily service. Quoting from the article:
“I am done with Groupon and any other organization like it,” Tong said. “I would rather pay the money to get better service and be treated like an actual customer instead of a nuisance. It’s not worth it.”
When a business suddenly has a huge influx of new customers, it can be difficult to cope. Most Groupon deals are either for services (such as a massage, spa or photography session) or for a restaurant. These are businesses with a maximum capacity, and which may not be able to handle the sudden avalanche of new customers. It’s a stressful time for the business, and despite their best intentions it’s not going to be possible to provide the best customer experience at a time like this. Your Groupon customers are going to see your business at the worst of times, and they may be even less inclined to give you a second chance.
Value to Merchants
So you ran a Groupon deal at your business, during which you lost money but gained a lot of customers who will come back and pay full price next time? Think again. A survey quoted in the above article found:
“…just 3% of respondents said these types of promotion sites have brought them repeat business.”
“67% of merchants found that Groupon customers’ spending habits are “lower” than their typical customers”
The end result of running a Groupon thus becomes:
- You work extremely hard for a short duration, losing money to cater to an influx of customers
- Those customers spend less than average customers (to be expected, they came to your business due to a fantastic deal)
- Those customers are never seen again
Given all of that, it seems hardly surprising that:
“the majority (82%) of businesses have not, and will not, run promotions with Groupon or other daily deal sites this year”
So What Is The Alternative?
This is where Ferret Card’s 3R system comes in – Reach Out, Reward and Retain. Each of these elements is important to a successful business. While a daily deal is fantastic at Reach Out, it is absolutely terrible at Rewarding and Retaining loyal customers.
For a more detailed explanation of Ferret Card’s 3R system, check out: