Can daily deals create loyalty?

24 June 2012

The initial success of Groupon's IPO in late 2011 appeared to signal that coupon-based group buying was a winning strategy for all businesses hoping to attract new customers and drive revenue. The downward pressure on Groupon's share price, the much publicised problems encountered by some merchants overwhelmed by demand, poor customer experiences and the fact that both Facebook and Yelp have now stopped their own group buying initiatives indicate that this approach might not be as successful as first appeared.

Where's the loyalty?

The success of daily deals and discounts are based on their perceived value and ability to meet an immediate consumer need at that point in time. Whilst merchants and partners would want to use this initial transaction as a platform to encourage the customer to become a repeat and loyal purchaser, this remains to be proven. At one extreme, it could be said that the overwhelming volume of daily deals is encouraging the opposite of loyal behaviour - regular offers and deals have helped to educate consumers that being loyal is not always in their interest. This is particularly the case where they do not have a brand preference and/or are primarily driven by price or value.

Surveys indicate high merchant satisfaction1 and suggest that a huge 91% of daily deal users have done - or plan to do - business with a merchant again since taking advantage of a daily deal2. But as the market matures and online offers and virtual coupons become less a thrill to discover and more of a commodity to uncover, it is hard to see how those accustomed to low prices will readily pay a standard rate for the same goods or services. Furthermore, if loyalty is being created, is the positive association with the individual merchant or to the brand delivering the deals?

The launch of Groupon Rewards appears to confirm that building loyalty on the back of a deep discounting strategy is not a viable proposition - even for Groupon itself. In addition, this also suggests that Groupon wants to engender greater loyalty for its own brand to avoid any risk of disintermediation. However it now acknowledges how strategically vital its merchants and the customer experience is to success, particularly if it wants to achieve a sustainable level of loyalty from both these groups over time.

Launched in May across the US following a successful pilot, it provides a proposition to the customer enabling them to access different levels of deals with merchants based on the spend on a registered credit or debit card. The Rewards initiative gives power back to the merchant and allows the retailer to determine the levels of incentive and reward based directly on customer activity or spend in store. The potential risk is that promise of future rewards - even discounts - based on spend could cannibalise revenue from customers who were already willing to spend at the merchant. The real challenge will be to see how the merchants encourage customers to spend more, whether customers tend to stick to the coupon limit or the goods available on discount and if they only return when another discount is offered.

The move to quality and value

Customer loyalty flourishes when the relationship is perceived by the customer to be on a one-to-one basis and when the customer feels that deals, discounts and offers are tailored specifically for his or her needs or as a reward for specific activity.

Brands need to capture the data from customer interactions to allow them to do this. Amazon achieves this balancing act of offering 'daily deals' that trigger group buying and appearing to target individuals because they have at hand the data that reveals previous purchases, searches and reviews. Even brands with a depth of data and insight still work towards being able to provide a greater level of relevance and value. Despite UK mobile operator O2 providing their customers with access to over 3400 money-saving deals and experience from 300 brands since July 2011, last month they launched a social campaign asking customers to tweet or Facebook their suggestions for the brands they would like O2 to approach for new offers via Priority Moments.

In addition to Amazon, many of the larger technology brands - from eBay to Microsoft and from Facebook to Google - are competing directly for a greater share of consumer attention and spend. With the interactive trend continuing and TVs incorporating web-connected apps and web browsing, the fight for the consumer is being conducted in new and multiple dimensions. Capturing and aggregating customer online behaviour and social interactions is the battleground that will define success in customer relationship management.

Future of group buying, value and loyalty

The great majority of loyalty programmes historically created additional value for the customer by offering access to their own distressed inventory, whether an unoccupied room or empty aircraft seat. Today this value has been successfully extended beyond their core products and services through partnerships and into wider lifestyle areas.

Furthermore, greater tailoring and localisation is a continuing trend for increasing value and loyalty. One example where this is evident and used to enhance brand preference is The Global Hotel Alliance who launched access to over 1000 "local experiences" as part of their GHA Discovery programme. Groupon Rewards and the growing success of Bloomspot show that deals and incentives work best in a local environment giving greater control to the individual merchant and targeting interactions by matching individual behaviours.

Central to any successful group buying approach is data collection. It is the insight derived from this data that creates the loyalty opportunity. When the brand or merchant possesses the right data, it can transform a simple offer into a relevant and welcomed message to engage and encourage a brand interaction which does not involve the customer hitting the "delete" button. To secure loyalty beyond a purchase, brands must continue to add value to the relationship and demonstrate a level of understanding and intelligence customers already expected of them.


1 - Foresee Groupon Satisfaction Study of March 2012
2 - Foresee Daily Deal Commentary of February 2012


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