The New Deal
In the era of daily discount sites like Groupon, customer loyalty may be a thing of the past.
As bleak as things may seem, one silver lining in this floundering economy is that it’s forced many of us to become much more conscientious with our cash. Credit card debt is near a 10-year low, coupon use is at an all-time high, and consumers are smarter about how to get what they want for less.
Claire Johnson of Longwood is one such smarty. Whether she wants to go out for dinner or jump out of a plane, she has no intention of paying full price for the experience. With a dozen daily-deal marketing sites flooding her email inbox with offers on everything from hair styling to car repair to sailing excursions, Johnson now bases her discretionary spending on cheap thrills.
“Some friends and I decided we’d like to try hang gliding,” says Johnson. “We held out for a deal and sure enough, a few days later, a 50-percent-off deal was emailed out.”
Because of the half-off deal phenomenon, an everyday decision about where to go out to eat is planned around what restaurant vouchers you’ve bought from the deal sites.
Such dotcom discount marketers as Groupon, Livingsocial, Eversave, Half Off Depot, Dealagio and many others like them have influenced consumers to not only spend money on things they normally wouldn’t spend it on, like the scuba lesson Johnson took, but to chuck customer loyalty altogether. A 2011 Rice University survey of consumers who use daily deal sites revealed that less than 20 percent returned to businesses to pay full price.
“If you teach your customer that the only thing your business has to offer is a low price, through the constant offering of daily deals, you are teaching them the habit of only buying on price,” warns Michael Bowers, professor of marketing and entrepreneurship at Rollins College’s Crummer Graduate School of Business. “Low price is one of the easiest business variables for your competitors to match. So eventually the whole business sector devolves into price-based competition and the low-cost provider wins.”
But these deal-a-day offers encourage spending, even if it’s at a reduced amount, which is split between the marketing site and the merchant. So a $30 coupon that costs $12 on a deal site brings in $6 to the business owner. If such an arrangement would seem to be bad for the bottom line, then why do so many businesses sign up with the deal peddlers?
Because, as business owners Eileen Mathis and Jason Schulke learned, the discount sites can deliver customers by the boatload. Mathis’s YOLO Salon and Spa in Winter Park sold 1,400 Groupons just before Christmas last year, and she says, “We’ve had a phenomenal summer. Our numbers are double where they were last year.” And contrary to the Rice study, she says a lot of Groupon buyers became repeat customers. Schulke says Groupon made his Orlando Balloon Rides more profitable, allowing him to hire five full-time employees and buy a 25-passenger balloon.
So discounting pumps up business, but it also spoils the consumer. Johnson may speak for a lot of consumers when she says her buying decisions are now based on “bargain over loyalty.”
“You just know nowadays that the deal will surface again—it’s inevitable,” she says. “These are wants, not needs. I’d rather wait for the bargain than pay full price.”
A Local Dealer
When Orlando-based daily-deal site Dealagio.com launched earlier this year, managing partner Tom Bryan knew he faced some stiff competition. But Bryan says his site can compete with the big guys like Groupon by staying small and local. “Our concept since launch is that we’re in Orlando, we’re staying in Orlando, and have no plans to grow outside.” Over the coming months, Bryan says Dealagio will distinguish itself from the rest of the deal sites by offering exclusive experiences. “Honestly, how many deals for salons can you handle a day?” he says of a frequent offer seen on discount sites. Dealagio’s deals, he says, will range from “unique dining experiences with Orlando’s top chefs to all-day adventures on air, water and land. We want locals to be tourists in their own city.”