With over 600 group buying and deal sites in operation, businesses have more platforms to choose from than ever before. But, before they jump into forking over 50 percent of deal revenues to sites like Groupon, merchants need to rethink whether or not discounted deals are the best way to optimize customer acquisition and breed loyalty.
Do deal sites convert consumers into loyal customers?
Critics of Groupon-like deal sites suggest discounted offers fail to convert one-time buyers into loyal, repeat customers. Instead these sites are attracting those interested solely in savings.
If teaming up with Groupon doesn’t yield reasonable customer acquisition rates, merchants will absorb significant financial losses due to the compensation structure of the deals: Businesses offer their deal at a discount of 30 to 50 percent, Groupon takes half of the difference and merchants keep the rest minus the credit-card processing fees (usually four percent).
Forrester research indicated that 51% of those who bought discounted deal said they would have bought those deals at full price regardless of the discount. They didn’t purchase the deal for the discount, but did so simply because the deal was available.
Businesses need to find a way to avoid attracting existing customer and deal seekers. Groupon and the like are reaching out to millions of consumers all with different buying habits. It works for Groupon because of their massive e-mail databases, but new companies that intend to copy this model will have little chance of succeeding, unless they can significantly refine their target.
John Byers and Georgia Zervas from Boston University and Michael Mitzenmacher from Harvard University studied over 16,000 Groupon deals and concluded that when businesses offer deals it yields a significant increase in the number of their reviews on Yelp.
The study analyzed over 50,000 Yelp reviews by searching for keywords “Groupon” and “coupon,” and concluded that Yelp ratings from Groupon users resulted in star ratings that were 10% lower on average than reviews that did not contain those keywords. The study also indicated that consumers show an increased interest in a merchant after a deal because of the high volume of reviews. This leaves merchants at a crossroads: weighing the risk of the quality of a review vs. quantity of reviews.
The evolution of group buying sites
Deal contextualization is the future. Companies need to act as “cupid” between consumers and merchant by effectively merging content and commerce into an integrated experience. Future success will be found by companies who own existing sites, with loyal followings, and take advantage of white label deal providers. The more niche and engaged the audience is, the more excited advertisers will be to offer great deals.
White label sites empower online content generators (bloggers, online magazines and newspapers, etc) with the technology to integrate deal offerings into their site. White label sites like Group Commerce and getta!Table does this already by allowing businesses to effectively operate the infrastructure behind the daily deals. getta!Table enables restaurants to customize the deal specifics, host the deals on their Facebook page and control it will simple to use tools.
How to build loyalty
Mobile geo-location tools like Foursquare are used to cultivate communities around a business and to reward loyal customers with online credentials (i.e. “badges”) and more specialized discounts – like freebies for a Foursquare “mayor”.
Foursquare users interact with a business more for the social and community aspect and don’t look to the offered discounts as a necessity.
By offering a balance between the two marketing mediums of Foursquare and discount deals, businesses can leverage their existing communities to spread the word and grow a more loyal customer base.
For merchants looking for quality and not just quantity look for deal sites that add value and are focused on your vertical. You may also want to look at white label deal platforms so you can promote your own deals and have greater control. If you do go with the big deal site make sure there’s some profit in the offer of that you have lots of additional products and services to sell to those customers at the time of redemption because you may never see them again.