Groupon and rivals like LivingSocial, Google Offers, and other daily deal sites that broker goods and services at deep initial discounts aim to help businesses get new customers in the door, again and again. It's a fairly straightforward formula that works on many levels; just look at the rivals that have cropped up to challenge early leader Groupon.
But the appeal of the deal is clearly wearing off for some consumers. In my experience, sales staff increasingly let their annoyance at handling the conditional coupons slip out. Ever notice the changed tone of the receptionist making the massage appointment once you declare "I have a Groupon"?
Businesses are getting better, it seems, at isolating those newbie patrons that send the signal that they're not returning anytime soon sans the markdown. But proprietor frustration is sometimes taken out on other good-intentioned and curious daily deal users who truly want a lower-cost trial run as they sip sake or tie up their tap shoes for the first time. They're begging to be courted.
In another turn, established customers at hair salons and corner restaurants are finding that the coupon-only crowds sometimes ruin the quality of experience that regulars have come to expect; the flash of new appointments and reservations can scuttle the scheduling or walk-in ease they're used to. They may go elsewhere.
In an era where brick-and-mortar businesses must compete with online rivals, stellar customer service is becoming a rarity and yet may be more important than ever. How can businesses hope to gain repeat traffic as the deal buzz wears off and this fast-expanding retail trend moves into its next stage—sustaining customers and the business model for deal middle men? As for consumers, will we one day be painfully weaned from promotions?
Susquehanna Financial Group and daily deal industry tracking firm Yipit surveyed almost 400 merchants recently about their experiences running daily deals with Groupon (symbol: GRPN), Amazon-backed LivingSocial, and other providers.
An average of 8 out of 10 merchants said they enjoyed working with daily deal companies. However, the survey also found that 52 percent of the polled merchants are currently not planning to feature deals in the next six months, and nearly 24 percent of the merchants intend to feature only one deal in the next six months. In response, Groupon, which had one of the notable IPOs of 2011, saw its share price drop below its $20 launch.
"Our proprietary merchant survey highlights concerns of the daily deal sites and early read implies lower usage over the next six months, despite some surprisingly high satisfaction rates," Herman Leung, an analyst at Susquehanna, wrote in a research note.
Some stories reveal major holes in the daily deals formula. The U.K.'s Telegraph ran a profile of a British cupcake owner who claimed that a Groupon deal nearly wiped out her business after she had to sell 102,000 cupcakes at a loss. In my own north-side Chicago neighborhood, cafe Drew's Eatery shuttered in December and pointed the finger at online deals in a statement: "Trying to keep up with our competitors we began working with the online deals (Groupon, Plum, KGB, LivingSocial, Reward Network, Price Bunch and others). We soon realized that these deals are not what they seem but yet are silent killers and only build false hope. We accept full responsibility, as nobody forced us into Groupon or any other deal. We stopped doing any future deals in October and had hoped we could recover, but it was too late."
Groupon and LivingSocial recently unveiled instant deals, which are targeted to a subscriber's location and usually run for just a few hours. For instance, users might troll for a lunch deal by their office. The survey by Susquehanna and Yipit found that only 10 percent of merchants polled have considered running an instant deal with Groupon or LivingSocial.
LivingSocial's twist on the process includes the option to share a link to your deal. If three more people bite, your deal is free.
For its part, Groupon has positive testimonials, with some businesses saying they consolidated a half year of expected customer acquisition time into a few days. Theaters have welcomed the opportunity to fill an otherwise half-empty house on some nights, which tends to improve the experience for the actors and the audience. Groupon says it will make right or return any purchase that doesn't meet consumer expectations. Response time has received mixed reviews in social media and retail blogs.
Deal sites also raise a bigger issue: The advent of "thrill of the hunt" marketing that seems to separate consumers more easily from their disposable income (or maybe not-so-disposable income in some cases).
[See Why I'm Shunning Groupon.]
As for this writer and consumer, I'm still a Groupon subscriber. If anything, the frequent emails drop local business names right in my lap, providing gift ideas or reminding me that I want to find a new dentist. But mostly I long to return to a simpler formula, in which I'm willing to pay full price for the best meal I've had in months. And I'll return because the food was just that memorable.
Whether you use daily deal sites—well, daily—or more sporadically, there are some common missteps or misinformation that can be avoided in order to improve your experience and benefit the local business that will keep money in your community.
Here's a snapshot of common Google gripes and LivingSocial letdowns, plus ways to improve your experience:
Note how many deals can be used at one time. Some businesses limit using more than one coupon during a single visit even if you buy up to the maximum number allowed at purchase time. So if you're hoping to cover a larger family by using three coupons at one meal, for instance, you may find yourself limited to one-per-visit and paying full price for the remainder of the bill.
Read the fine print regarding what the deal covers. Sometimes you may have to make additional full-price purchases to get the complete service. For instance, as one user notes, a spray-tan salon sold the booth session via Groupon, but the moisturizer and color tube that are apparently necessary for a longer-lasting complexion change were sold separately.
Do some research. LivingSocial claims its deals are handpicked by its on-the-ground experts. Consumers will be better served to read up on their purchase independently. It's not a deal if it's a disappointing experience.
Maintain spending plans for eating out and recreation. It's bad on the budget to buy an Internet deal just for the sake of getting a bargain.
Reconcile credit card charges with the deal specifics. Some comments have noted that charges appear right away on credit cards but deal confirmation can be delayed.
The deal broker is responsible for repaying the consumer if the deal provider (the shop or restaurant) goes out of business before the expiration of the coupon. Some consumers have reported a delay in getting their money back.
Groupon and LivingSocial stress the importance of appropriate gratuities, including calculating the tip as a percentage of the full-priced service. At the risk of stating the obvious, heed their advice.
Be constructive but fair about the quality of service. Some small business owners say they're getting horrible online reviews from fleeting "deal" customers.