Yesterday, we published a note from a former LivingSocial customer who explained why he thinks the daily deal companies like Groupon are doomed.The customer told the story of how, after he did his LivingSocial deals, none of the LivingSocial coupon-buyers became regular customers. They were also generally much more of a pain in the arse to deal with than his regular customers, despite eating at his restaurant at half price. And, meanwhile, some of his regular customers who also bought the coupons paid half-price when they would have paid full price.
So the customer, who also owns an e-commerce business, said he will never use a daily deal site again.
Well, not surprisingly, our post prompted a salesperson at one of the other daily-deal companies to write us and ask for the customer’s contact info because he wanted to explain that his daily-deal company was “different” than LivingSocial and Groupon.
We forwarded the salesperson’s note to the merchant.
And, in the merchant’s lengthy response, we learned that presenting your company as “different” than Groupon is now the first part of every daily-deal sales pitch.
Obviously, this is just one merchant. Others (about half, in a recent survey we did), plan to use daily-deal services again. But this merchant’s reaction provides further evidence that Groupon and LivingSocial have a lot of work to do to make their service work better for their merchant customers. This work, we suspect, will lead to smaller discounts and, therefore, smaller profit margins.
Here’s the follow-up note from the angry merchant:
Now, when sales people from deal sites cold call me at the restaurant, literally, the first or second sentence out of their mouth is “We’re not like Groupon”. They know they are about to get hung up on.
I’ve had LivingSocial customers buy $250 worth of gum from me. Is there no other product on our site they could possibly use?
I had a LS customer buy 10 coupons (they somehow got around the system – could have been by using multiple gmail addresses) and when I caught the customer, he got mad at me. He honestly thought that his buying 10 coupons was good for me. That I was thrilled that he would get $125 off each of his 10 orders (LS customers pay LS $50 for the $125 discount).
I think we sold diapers to about 30 of the 800 or so LS customers. Maybe 1 reordered a month later when the diapers ran out. So, we personally emailed each diaper customer to ask why they wouldn’t order again. None of them had a coherent reason/answer. I honestly think there is an aspect of gambling/slot machine/minor thrill with purchasing these deals. These customers are so pumped up to buy a deal (Whoopee!) that they have no sense of the underlying business or product or service.
A rep for one of the other deal companies pushed back against me when I told her how useless the experience had been. She told me that I needed to remarket to my customers. I asked her what that meant. She said to offer them more discounts. So, I asked her if she thought it was really such a good idea for me to get my customers to expect a discount with each future purchase. She had drunk the Kool Aid to such a degree that she thought that was a sensible business strategy.
My company already offers an automatic 2% discount on a customer’s orders. Each dollar spent is a point. When you accumulate 1250 points (have spent $1250 over however many purchases) you get 2% back – $25. It’s not the most amazing thing ever, but, it’s my way of rewarding return customers.
Not only will I do (practically) anything to retain a regular customer, but so will any retailer in the world. We all shower our return customers with as much love as possible. We do this because it’s good business and, on a personal level, we want to make those people happy who make us happy.
So, with respect to the daily deal companies, I would like to ask the question “Who is happy in this relationship?”
Are investors in Groupon/Living Social happy? Are employees of those companies happy? The executives? The people who buy the deals? The merchants?
As a merchant, I am not. The people who buy the deals probably are happy (they bought the deals after all). Groupon employees might be happy. Investors could be. Executives could be. This whole world has an overall feel of sadness and seediness – the old Times Square comes to mind.
This is not Google, where, seemingly, everyone wins. Nor is it a thriving, local store where, again, everyone wins. It’s a world that exists because things aren’t going well.
Merchants shouldn’t have to discount wildly to attract new customers. Customers should have enough money and be willing to pay full price, in general, for what they consume (how about asking a customer to take half off whatever they are charging for whatever service they are providing in their work lives?). Advertisers should be clever and create value. There’s nothing wrong with offering a sale to entice a customer to “come on in”. I have no problem with flash sale sites where everyone wins. This is different. This just speaks to a reality that I wish did not exist.