February 5, 2016

Deal Sites Aren’t A Good Deal For Merchants

I’ve been telling my clients for a while now that sites like Groupon and Google Offers weren’t going to be good for the long term growth of their businesses. Now the NYTimes has confirmed it.

Most businesses want to create relationships with their customers and provide them with a high level of service. That would allow them to earn enough money over the lifetime of their relationships with those clients to support that high level of service.

“Deal” sites, however, are drawing in the type of customers my clients don’t really want–and worse, they are training those clients to be loyal only to the next deal.

Furthermore, “deal” customers tend to be very fickle and are more likely to post a tepid or negative review on sites like Yelp.

You’ve also got to factor in that the deals being offered are usually at a 50% discount with the “deal” site taking about half of the remaining revenue.

If you look at the poor customer retention, the unfavorable revenue split, and the finicky customers you’ll acquire, the only thing you can conclude is that the “deal” site is the only one getting a deal here.

That being said, I do believe there is a place for “deal” sites in the overall marketing mix.

I would use deal sites to generate sales for underutilized assets or resources. For example: if I’m running a hair salon and my stylists were only working at 75% capacity, that means that my stylists have 25% of their time free, but I’m still paying 100% of their salaries, 100% of my rent, and 100% of my other expenses.

So instead of taking that 25% loss, I would use a “deal” to try to fill that remaining capacity and hopefully break even or maybe even make a few bucks. The main thing is to never sacrifice the capacity that is generating normal fees for customers who are using a discounted deal.

Once you have these new customers, you can expect to lose most of them to the next deal at the next salon.  However, I would still try to create a smart retention program that might possibly help you keep some of them. To do this, I might tag these customers in my CRM as “deal” customers and email them from time to time when I have unused capacity. When doing this I might offer them my own deal and cut the “deal” site out of the loop. That way I would earn 100% of the revenue after the discount instead of splitting it with Groupon or Google Offers.

Next, you absolutely must keep an eye on your Yelp and Google Places pages to make sure these fickle customers aren’t damaging your reputation.

Finally, what other customer retention ideas might you have for the “deal seeker” or do you say ‘good riddance?’