There are several reasons why this marketing hysteria over Groupon (and all the lookalike offers clogging email accounts daily) will be a promotional “flash in the pan”. To understand why Google was sufficiently infatuated with Groupon to want to spend $6,000,000,000 buying them is easy: localized marketing is one gap in the massive Google portfolio. Groupon, in theory, would help them to plug that hole.
As a consumer, I have purchased Groupons (although after their Super Bowl debacle, I will reconsider in the future), largely for one of two reasons:
- They offered 50% off at a restaurant or retailer that I already was a customer at, and was intending to purchase from in the future anyway, or,
- They offered 50% off at a restaurant that I had not been to, but would go to at a greatly discounted price (although I would not go back as a “full price” customer again).
I am pretty sure I am not alone in my motivations for having purchased a deal from Groupon. And, to the dismay of the restaurants or retailers I visited with my Groupon-in-hand, I either: (a) won’t come back again (unless there is another 50% deal that entices me), or, (b) would have made my purchase there anyway, and paid the regular price. So in either case, the retailer did not benefit from my participating in the offer. Now multiply that experience by the number of Groupons sold, and you find a mix of unnecessary discounting coupled with a likely void of future purchase intent. This situation is then magnified by both the number of competing “deals” that show up from other sites. The result: a huge drawdown of consumer dollars which could have been directed into more profitable transactions that would build customer loyalty, frequency, and word of mouth.
So what is a retailer or a restaurant to do? Well, for starters, find a better way to entice new customers than the vaporous allure of cheap pricing. All you are doing is setting the stage for consumers to lower their perceived value for your store or retail category.
One alternative that would have a more powerful, long-term effect is to differentiate by elevating the customer experience, so that more consumers leave your establishment raving about the service quality, or the selection, or the flexibility, or the designs, or the depth of product, or some other meaningful driver of loyalty. Here’s a thought: Build a personal relationship with your customer…be a friend, a confidant, a supporter, an empathetic listener or just plain genuinely interested in earning their business. I would take the positive word-of-mouth that this approach creates any day over a price-shopper.
Let’s face it, driving down prices, while driving up discounts, is a self-fulfilling prophecy. It may work for WalMart but it won’t work for most others, in any category, especially those local retailers who have to compete daily against the big boxes. So why would you want to showcase, and take a financial hit on, a one-time discount that only increases your costs and marginalizes customer loyalty?
I understand that the tide of discontent with Groupon is rising, particularly in the restaurant segment. Customers may become loyal to Groupon, but the participating eateries are not feeling the love. My guess is that the illusory lift in store traffic and sales will be short-lived by those in other retail categories as well.
$6,000,000,000 for Groupon, and they turned it down because they felt it was too low? Should have taken the money and run. I doubt that they will see a knee-jerk, ego-driven offer like that come by again.
(Footnote: Hats off to Tom Fishburne for the great cartoon… Visit Tom at http://tomfishburne.com)