Daily Deals sites such as Groupon and Living Social are getting no shortage of press; posting astonishing revenue figures and increasing in size at an exponential rate. The idea of using dramatic discounts is seemingly wonderful at getting new customers in the door, yet these sites have come under extreme fire for the low retention rates seen by their customers. When you consider that the majority of businesses are already running at about a 25% margin, giving away half of their revenue to a customer and at least half to a Daily Deal site leaves a lot to desire.
To effectively solve and fix this problem, you must get beyond the surface and truly eradicate the root of it. For Daily Deals sites, their long-term success is hindered by the simple fact that they’re focused on changing the wrong consumer behaviour: You can’t change how much a consumer is willing to spend, but you can change where they spend it. As I said, these sites have done a remarkable job at getting people in the door, but they fall short in the empty promise that they deliver. Asking a consumer to spend $25 today and come back to spend $50 for the same service or product simply doesn’t fly.
To sustain their model in the long-term, these businesses are going to have to shift their focus from simply getting people in the door, to one that creates a long-term customer base. After all, we know the age old adage “It’s 5x cheaper to retain a customer than it is to develop a new one.” That’s clearly at play here. These deal sites must help their business clients retain customers, not just get them in the door. Without creating customer retention for their clients, the Deal sites aren’t going to achieve retention among their clients. A lose-lose for both the consumer, the business and the Daily Deal Site in the end.
So how can they fix this? Simple. Instill a way for your businesses to differentiate themselves on service and engagement. After the initial 50% or more off, Daily Deal clients essentially fall back on a level playing field with their competitors; and no business is without competitors. Whether you’re a retailer, a restaurant, or a hotel, there’s always competition with essentially the same product or service right across the street. To win the battle for retained customers, these businesses have to differentiate themselves on the service, and ultimately the experience, that they provide. Considering that only 1 in 26 customers speaks up when they have feedback or need help, there’s tremendous opportunity to including a service component. To ignore this chance to enhance their value to businesses, Daily Deals sites ignore their ability to survive.