The new wave of coupons (often referred to as “daily deals”), the pre-purchase of goods and services at a discount, have proven they can drive a lot of new business to local retailers, and more recently, online retailers like FTD. The premise of the idea is deceptively simple. Consumers sign up with a service such as Groupon or Living Social, and most recently, Facebook Deals, identifying their town and some other information about themselves. The service sends emails (or in Facebook’s case, posts that are more easily shared – more on this in a later post) with offers for products or services at a discount if they are purchased online, through the service. The consumer prints off the voucher and exchanges it for the service at the retailer.
- Retailer is inundated with business they cannot handle.
- Retailer provides a significant discount to a bunch of first time Deal Seekers with no brand/business loyalty resulting in loss-leaders that lead to no repeat purchases.
- Customers are frustrated because they had to wait too long to receive the product or service offered. This resulted from inventory and capacity issues.
- Customers feeling as though they were ripped off as they suspect the retailer artificially inflated the retail price to provide a “larger discount.”
The “daily deal” has a place in the local interactive marketing mix, but retailers must have that place clearly defined before entering the arena. Essentially, daily deals can play two important roles for local retailers: 1) build new customers, and 2) help move excess inventory /capacity that have not sold well.
With either of these roles, retailers must ensure a good customers experience.
First, be honest with yourself about your capacity and your inventory. One aspect of marketing that has blurred this new tool is the idea of breakage, or the rate at which individuals do not claim an offer to which they are entitled. This is most commonly applied when calculating the cost of rebates. For example, if a company offers a $2.00 rebate, but believes that only half the people will actually send it in or claim it, then they are assuming the breakage is 50%. This translates into an average discount of $1.00 per sale. Breakage plays a big role in calculating the impact of offers on the bottom line.
Here is where it gets difficult for daily deals, because the old model of breakage does not apply. So, when setting limits on the number of local Internet offers they will make available, retailers must assume a near zero breakage. Retailers cannot risk running out of inventory, or over taxing capacity. This can become challenging as the online offer-services make more money with higher volume, but retailers must stick to their reality, even if it means they need to squelch the use of daily deals.
Secondly, don’t mess around with the numbers. Base all discounts off your real retail price. Remember, this is the Internet; checking up on prices has become the easiest thing for consumers to do. Just ask FTD.
Third, have a retention plan. If you are driving a whole bunch of new customers with local Internet based discounts, how will you retain them without continuing the use of daily deals? It is not as easy as simply providing good service (that is just the ante for successful retail.)
Taking a queue from marketing history, back in the 1980s and 1990s, retailers and CPG companies used coupons to drive trial purchases. It did not take long for consumers to become “addicted” to coupons. We spent millions in advertising trying to convince consumers that they no longer needed coupons to get great prices, that we had EDLP (every day low prices). Some retailers like Wal Mart built an empire on EDLP, but coupons never went away. They eroded brand loyalty and made switching a common practice among consumers.
So, for retailers that are using an online daily deal service as part of their Internet marketing, you need to plan for the post deal relationship. Loyalty programs can keep people coming back; return-with-a-friend deals, or other such programs should be planned as part of the online daily deal. Develop an email program, encouraging sign up at the store with a return customer incentive (for more thoughts, see Extending the Value.The reality is that consumers are in love with their discounts and you will be hard pressed to move them away from that. They key is to develop programs that will fill this need through loyalty to your store rather than continuing to seek new locations with discounts.
National franchise and dealer programs have a unique situation with local Internet marketing. Unlike the Gap that can centralize the daily deals for all locations, these organizations have to facilitate local interactive marketing deals across multiple, independent businesses that share the same brand name. There are a few areas that present a particular challenge: 1) the mechanisms for corporate support are structured around advertising and marketing programs and not necessarily set up for online daily deal style discounts. Parent companies need to structure marketing funds and rebate funding around this new concept, specifically supporting local Internet marketing deals, but also related loyalty programs. 2) Developing consensus around the daily deal offering among multiple independent businesses is a challenge. Typically referred to as local marketing groups (LMGs), these groups need to build a program into the beginning of their annual or quarterly Internet marketing plans.
Bottom line, while daily deals are great for driving customers, small business and franchise / dealer networks alike must plan their place in the Internet marketing mix, and general marketing carefully. From ensuring that you can deliver on the promise, to ensuring you are leveraging online daily deals for relationships that last more than just a day, make the most of these for you and your customers by planning ahead before diving in.