Maybe that Groupon deal isn’t so awesomeFebruary 22, 2011
MerchantCircle released a big survey yesterday detailing the rise of social media among small businesses as a cheap, effective marketing tool. Among the more interesting results is the conclusion that “social media are now the top marketing strategy for local businesses” – we wonder if that trend will continue or if social media-based marketing is simply having its moment in the spotlight right now.
What raised our eyebrows was this statistic: “55 percent of people who have run a daily deal campaign said they would not do so again.” That means that Groupon, LivingSocial and all the other group-buying knockoffs are either doing a terrible job at customer retention or that perhaps the group-buying premise is a flawed one – at least for the businesses themselves – to begin with.
Our experience with group buying in a business-to-business e-commerce environment has been mixed. Everyone seems to want it, yet once it’s implemented, adoption tends to be very low (or, in some cases, nonexistent). At least part of the reason for this is that, despite the appeal of group discounts, many business purchasers don’t really want to wait to see if their colleagues are going to buy something just to get a discount; purchases are driven by need, as opposed to by impulse.
Groupon and their ilk have specifically targeted the impulse purchase: spa treatments, massages, recreational activities and restaurants. Things many frugal buyers wouldn’t normally consider purchasing – pedicures, for instance – suddenly become much more appealing when there is a perception that you’re getting it for next to nothing. This “deal mentality” is a powerful influence on impulse purchasing.
Of course, if the price is inflated in the first place, that deal might not be so hot – that’s what happened with Groupon’s Valentine’s Day deal with FTD, and some business owners have alleged that Groupon encourages retailers to raise prices for a few weeks prior to a deal in order to make the savings appear bigger. That’s nothing new, of course, but it does call into question the true value of those big discounts. Can group deal sites maintain their momentum if the perception of the deal changes?
The answer is probably yes. What Groupon has really pioneered is an incredibly cheap form of highly-engaged marketing. By building an enthusiastic audience for their daily deals, Groupon delivers customers to local businesses in a way that no other form of marketing or advertising can do (that’s why Google, who derives a surprisingly large amount of their revenues from small, local businesses, threw so much money at Groupon in an unsuccessful attempt to acquire the company). Groupon might not be right for every business, but it’s a very effective way to get customers in your door that might have cost you a fortune to acquire through other means. The key question is whether or not they come back after the deal is done.