There are two critical things you must have in place to realize the full potential of this kind of Internet marketing strategy. Without them, you may end up with a net “negative” for the experience.
If you haven’t already, read my introductory post on this subject:
Two Things You Must Do If You Use “Deal-of-the-Day” Group Purchasing Sites as Part of Your Online Marketing Strategy.
In the right circumstances, group purchasing sites like Groupon and Social Living can put your business on the map. Even large brands are starting to use these kinds of sites (there are over 500 of them) to stimulate sales.
There are many horror stories about local businesses being overwhelmed with the response to these deal-of-the-day promotions. Remember that the typical payment model provides for a 50-50 split of the income between the site and business. With the promotional discount, the business may end up collecting less than 25% of their normal, non-promotional charges for the products or services listed on the site.
While a certain percentage of coupons may never be used, most businesses actually lose money on the promotion. They depend on customers buying other products or services with much higher margins to reduce the financial impact of the promotion.
Business should look at the expense of these promotions as marketing dollars spent to acquire new customers, not as a break even or better situation. It is a matter of comparing the cost of acquiring a new customer versus the Customer Lifetime Value for the business.
The lifetime value of a customer is a recognized formula for the dollar value associated with a long-term relationship with any given customer. If you want to explore this topic further, follow this link: Customer Lifetime Value
Without an effort to optimize the return on investment (ROI), you are leaving a lot of money on the table. Think of it this way. If I spend a $100 dollars to acquire a new customer (one who will return after buying from you using the coupon provided by the group purchasing site) and the lifetime value of the customer is $200 in profit to your business, then you made the right decision and have a good ROI.
If, on the other hand, you spend $100 and end up with no net gain because of either not getting return customers or losing an existing customer for every new one you gained, your ROI is terrible and the promotion did not help your business.
The difference between these two scenarios could well be your business’ “readiness” to undertake these online, deal-of-the-day kinds of group purchasing promotions.
There are two critical strategies that must be in place before you sign up your business for them:
- Prevent Cheapening Your Brand
- Increase Customer Retention
Prevent Cheapening Your Brand
Maintain Price Structure, Quality, Selection, and Customer Service: Businesses that use group purchasing services like Groupon can be overwhelmed by influx of new customers who are taking advantage of the huge discounts offered. Without serious forethought and systems in place, the result of an avalanche of new customers who are there for the “bargain” prices offered can result in not only cheapening your brand in the eyes of potential new customers, but also with existing customers.
By offering such huge discounts, you may be setting or resetting consumer expectations about your products’ pricing structure. Shoppers may come to expect heavy discounting from you in the future and may defer purchases waiting for them. We can all remember how consumers came to expect heavy discount promotions from car manufacturers. They simply waited for them which created a “self-fulfilling prophecy” as car manufacturers wrestled with getting consumers back into car showrooms.
Pricing is only a small piece of the pie when it comes to cheapening your brand. Maintaining quality, selection and customer service is exceedingly important in customer retention. I’m not talking about the first time customers with the coupons. I’m talking about your existing customers who are shopping at the same time as the group purchasing customers. A negative experience for them is much worse than a negative experience with these “promotional” customers. Continue reading and you will see why.
Here’s a real case in point that has been repeated many times. Bleeding Heart Bakery in Chicago suffered a lot of negative reviews on Yelp and other review sites when Groupon customers cleared out the bakery’s inventory, leading other existing customers frustrated with the lack of supply to meet their demand.
Large increases in volumes can lead to increased problems with quality, customer service, inventory, etc. which can impact both new and existing customers. If that occurs, the business may lose whatever it may have gained by the exposure to new customers.
Make sure you set limits and you have the systems and personnel in place to handle the response without cheapening your brand in the process.
Increase Customer Retention:
If you are to fully take advantage of the group purchasing promotion offer, you should have a process in place for converting these first time customers drawn in by the discount promotion into “long-term” customers. You need customers who will make purchases from your business that are profitable for you.
You need a couple of things to convert these group purchase coupon customers to long-term customers. First, you must deliver a quality product and provide excellent customer service. Second, you need a process to follow-up with them as part of a relationship marketing/loyalty program strategy.
A major drawback to the offerings of many current group purchasing sites is that there is no after-the-sale follow-up. Without a plan to convert first time buyers into long-term customers, you are leaving a lot of money on the table. The lifetime value of a customer is a recognized formula for the dollar value associated with a long-term relationship with any given customer. If you want to explore this topic further, follow this link: Customer Lifetime Value
Many marketing professionals will tell you that it is five times more profitable to spend advertising and marketing resources on retaining existing customers than it is to acquire new customers.
You need a system for after-the-sale follow up designed with the customer in mind. Such customer retention strategies can take a number of forms. They all involve getting enough information from customers to begin a relationship marketing program.
It begins with an email address. They all have one or they couldn’t have received the offer from Groupon, Living Well, etc. in the first place. Over time you should attempt to learn more about the customer, their preferences and their buying habits as part of your customer database. This information can be used by your business to provide better service and value to your customers and to keep them buying from you.
Make sure you offer real value in whatever communications and specifics you offer to your customers as part of your relationship marketing and retention programs. The value must be perceived by your customers to be successful.
A relationship marketing, retention or loyalty program (same objective with different name) can employ different strategies. Typical strategies may include:
- Coupons, special offers, flash sales and newsletters based on customer interests
- Registration or a membership that entitles customers to special offers, discounts or other preferential treatments
- Welcome acknowledgements, sales recognition, thank you statements, etc
- After-the-sale satisfaction surveys
- Invitations to events based on the interests of customers
- Enhanced and empowered customer service, after-sale and technical support
The important point is that you need to have a customer loyalty/retention program to convert these shoppers into long-term buyers.
If you are in a business that doesn’t have many customers yet, group purchasing offers may be a smart online marketing strategy for you. If you don’t cheapen your brand and have a system for customer retention, it could pay big dividends for your marketing dollars over the life of your customers.
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