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View Full Version : How have daily deals helped with customer loyalty/retention?



closely
01-07-2011, 12:34 PM
I know that there are a number of folks on the forum who have participated in a daily deal (e.g. Groupon, LivingSocial). What has been your experience with customer retention? I realize that the primary benefit to a large scale daily deal is lead generation, but I am curious to hear stories of how you used this model to increase retention.

n_touch
01-17-2011, 09:31 PM
I am not sure that this will actually help in retention. Is this something that you are looking into for your business or for someone else? I have seen in my working with restaurants and retail stores is that an opt in email program or opt in texting campaign works better for retention. If you go the route of daily specials, then you are not only showing them yours, but while on the site your customers are bombarded with other ads from other businesses. It will help if you may be looking to grab new customers, but if you are focusing on retention, you want your business to be the focus of whatever advertisement method you are using.

Hope this was helpful.

Steve B
01-18-2011, 05:36 AM
I have done Groupon twice. I don't use it to increase retention. I use it to attract new customers. Once I get the new customers to try our product/service (home dog/cat food delivery), then I work on retention of those new customers by providing a great product and outstanding service. So far, the retention of these new customers is 70%. But, it has only been 3 months. After a year, I'm hoping that I will have retained about 50% of those new customers.

KristineS
01-18-2011, 04:53 PM
I'm not sure these sorts of offers are about increasing retention. They're about getting people in the door to try your product or service. Once you've got them in the door, it's the other things you do that cause you to retain that customer or to not retain them. Is your shop clean? Is your product good quality? Is your service friendly? Do you follow up with those customers who did come in as a result of the deal? Do you offer them incentive to come back? There are a million things that can help your retention rate, but I'm not sure using a Groupon offer or something similar is one of them.

dailydealinsider
12-30-2011, 02:05 PM
I know that there are a number of folks on the forum who have participated in a daily deal (e.g. Groupon, LivingSocial). What has been your experience with customer retention? I realize that the primary benefit to a large scale daily deal is lead generation, but I am curious to hear stories of how you used this model to increase retention.

So I've been working in the daily deal industry since it's beginning, and you're asking a great question. However, I think that you're making a small mistake. It's the same one that absolutely everyone else makes, so you're in good company. I'd say that few people in the industry even get this. The daily deal is not a part of your sales stream. I know it seems like it because someone's coming into your business, and getting a product. When you choose to run a deal you're "buying" an email blast, and the vouchers pay for it. You might get a chance to sell to them while they're visiting you, but set your expectation of only upselling 10-15% of voucher buyers. Return business is great, but remember it's all gravy. You got someone else to pay for your email blast, and you shouldn't expect someone else to do sales too.

My industry has done just a crap job of making this distinction, and just rode the wave of excitement. If you're curious for more info feel free to read my posts at dailydealinsider.wordpress.com.

billbenson
12-30-2011, 08:56 PM
I sell expensive B2B products which is different than what most people do here. Here is how I handle discounts:


I set my margins high so I can discount.
I never offer a discount if I'm not asked for one
When someone asks for a discount I look at the dollar amount. My frequent line is we only offer discounting on orders of $1k or more. Sometimes I say $5k. I have no written policy on this. Could depend on the amount of effort that will go into the order as well.
If a customer is under the $1k mark but it looks like they will come back for more, I offer a cumulative discount once the hit $1k. Say the buy one $500 item to test it. If they like it they will buy 10 more. I may give them the discount on the $500 order or I may give a larger than normal discount if the buy the additional 10 items.
If its something that has gone out for bid to a lot of distributors, I don't discount. Somebody out there will sell it under cost, particularly if its a small part of a multi million dollar project or the likes.


I don't know if this applies to anybody here, but it has gotten me repeat customers.

The thing with things like coupons, it strikes me that you may just be giving money away. You get more customers at a lower margin. You may not be making any more money. Then again, that's outside my knowledge base.

rcalie
01-27-2013, 12:37 PM
My answer would be: They haven't.

Daily deal sites only build loyalty and brand recognition for their site, not your business.

Their main attraction is "No upfront cost." If you understand what the real cost to your business aside from the monetary cost is, you'd never consider daily deal sites.

The big discount sites:
• Boast of their large membership – you don’t get real access to
• Leave you with LESS THAN 25% of the revenue
• Hurt your image with your current customers
• Strangle your cash flow

Boast of their large membership
You don’t get real access to their subscribers. You don’t get any contact information. And the biggest reason you don’t want it, the majority of their members aren’t in your area and they’re not interested in your offer. That’s right, that huge membership number means nothing to you and your business.

Leave you with LESS THAN 25% of the revenue
They make you give up at least 50% to the customer, the discount site takes half of what’s left, then they leave you paying the sales tax. You get LESS THAN 25% of the revenue!

Hurt your image with your current customers
Your customers don’t likely know about loss leaders. They are going to see you have these big discounts and think your profit margins are waaaay higher than they actually are. Your current customers are going to feel like you’ve been ripping them off. Would you stick around if you thought you were being ripped off? Why should they?

Strangle your cash flow
The discount sites collect the money up front. You have to provide the service when the customer shows up. They pay you (what little they do) on their schedule.

That’s why I worked with a developer to create a solution for small business that puts the leverage and benefits in the hands of the small business owner. You can learn more at: robcalhoun.com/t8au

Harold Mansfield
01-27-2013, 01:02 PM
Honestly, instead of paying someone else to give your stuff away on thier website using thier branding, I'd rather put the money into ads or marketing that will benefit your business directly.

rcalie
01-27-2013, 04:14 PM
Harold,

The businesses using these discount sites are often much like the people those sites send to businesses, trying to get something for nothing. That's why "No upfront cost" and "Free to join" appeal to them.


I'd rather put the money into ads or marketing that will benefit your business directly.

Realizing there is no free lunch is important to survival in business.

Steve B
01-28-2013, 04:41 AM
After over a year, my retention rate of the new customers is 30%. That makes the math work very well for me and I can tell you the success of my pet food delivery service is 100% because of these sites. We've tried almost every other type of advertising and the results are terrible. The best we can do when we aren't running an e-mail coupon is to keep customer totals level. The only way to actually grow our business is with these programs. In addition, they have definitely had a positive affect on brand recognition.

rcalie obviously has a different perspective - but, he makes a few decent points. They only send to customers in your geographic area - so I'm not sure I understand his comment on that. He is correct in that they don't give you can contact information on the purchasers (although the first time we did it, we got their names - now, they don't do that anymore). In our case, the contact information is collected when someone calls to redeem their coupon. Since we're a delivery service they have to give us all the contact information we would have gotten anyway. He is also correct, that you end up with less than 25% of the revenue. The sites keep half, plus they charge you an additional 2 or 3% for their credit card processing fees. You have to have a product with either a very large mark-up or a high likelihood of repeat business for it to work for you. In our case, we are betting on the repeat business. At a 30% retention rate (and actually now a bit higher since we do better at following up after the sale) it is a no-brainer for us. Another good point is that you run the risk of hurting your image with current customers. To reduce that affect we always send an e-mail to our current customers just prior to the coupon going out reminding them of our generous referral program and a brief explanation why we have to limit these deals to new customers only. Our customers seem to understand and, so far, we've never had any cancellations of service as a result. The cash flow actually isn't too bad in our case because they pay us a lot up front (I think 50%), then pay the rest on a schedule (I forget the schedule). Our customers, on the other hand, redeem their coupons slowly over a 6 month period so we have usually gotten all of our money from the site long before we provide the last service. We would give everyone in the city a free bag of dog food if we knew we would have 30% of them buying from us a year later, so, again, it's a no brainer for us.

We have now done these e-mail coupons 7 different times and we keep careful records. The first time was Sept. 2010, so we now have some longer term results to look at. For us, it is a slam-dunk. It is definitely not for every type of business, but, for us, we would have been bankrupt long ago without it.

KristineS
01-28-2013, 11:33 AM
You make a very good point Steve, one that really stood out for me. It's obvious that you've tracked your data and you know how well and to what degree offering this kind of deal has worked for you. I think that's key if you're going to try this sort of thing. You have to be able to track your results and know down to the penny what's coming in as a result of these sorts of offers. If you just get lost in the immediate rush of customers on the day of the deal and don't pay attention to who comes back and what sort of revenue this deal generates than you're missing the point. These sorts of deals won't work for everyone, no matter how much the sites try to tell you they will. The only way you'll know if they work for your business is to track the results, long term, and see what new business or returning business can be directly attributed to the deal.

rcalie
01-31-2013, 11:55 AM
After over a year, my retention rate of the new customers is 30%. That makes the math work very well for me and I can tell you the success of my pet food delivery service is 100% because of these sites. We've tried almost every other type of advertising and the results are terrible. The best we can do when we aren't running an e-mail coupon is to keep customer totals level. The only way to actually grow our business is with these programs. In addition, they have definitely had a positive affect on brand recognition.

Your business model is indeed conducive to the big deal site working for you. A traditional brick and mortar business like a restaurant, salon, etc. is highly competitive. Repeat business (continuity) is a bit more difficult when you are attracting people from the other side of town. That's not a problem when you ship to them.

Unfortunately, businesses like yours that could and do benefit are not the only ones the discount sites target. They portray their services as great for all when the reality is just not so.


They only send to customers in your geographic area - so I'm not sure I understand his comment on that.

They hype out their prospects by telling them "We have 2 million subscribers!" That is a lot of people for sure. But! The key is how many they have in that region. And furthermore, how many there are in your target demographic. That number is far less impressive.



The cash flow actually isn't too bad in our case because they pay us a lot up front (I think 50%), then pay the rest on a schedule (I forget the schedule). Our customers, on the other hand, redeem their coupons slowly over a 6 month period so we have usually gotten all of our money from the site long before we provide the last service. We would give everyone in the city a free bag of dog food if we knew we would have 30% of them buying from us a year later, so, again, it's a no brainer for us.

It is a bit different if your customer buys a coupon and takes x time to use it. If it is a restaurant (low profit margin higher likelihood of impulse), the customer is more likely to say "let's go here this weekend." Thus the business loses cash flow.

Your model is essentially a subscription. It takes action to cancel and people take the path of least resistance. That is the ideal situation to have repeat customers. It also fits right in with the online model of convenience. People online are naturally inclined toward something delivered vs. go to business location.

Someone in the segment I'm targeting (Small businesses that need people to take action to go there), could look at your success and think that they too might have the same experience. Without looking below the surface, it's an easy enough mistake to make.


We have now done these e-mail coupons 7 different times and we keep careful records. The first time was Sept. 2010, so we now have some longer term results to look at. For us, it is a slam-dunk. It is definitely not for every type of business, but, for us, we would have been bankrupt long ago without it.

Testing and recording is key. I'm glad to hear you have had success with them. The disclaimer you have is certain to be overlooked when it is overshadowed by a glowing review. But that of course is where the warning "caveat emptor" comes to mind.

KristineS
01-31-2013, 02:53 PM
Testing and recording is key. I'm glad to hear you have had success with them. The disclaimer you have is certain to be overlooked when it is overshadowed by a glowing review. But that of course is where the warning "caveat emptor" comes to mind.

That's the part that annoys me sometimes. Sure there are a lot of people out there trumpeting daily deals or Facebook or blogs or whatever as the next big thing that will cause your business to skyrocket, but it's up to you to know what will work for your business. You have to do the research and know your market and ask questions of your customers to find out what will work and what won't work. If you just listen to the "experts" and don't take the time to test what they're telling you, the end result will be a lot of wasted time and money.

Steve B
02-01-2013, 08:20 AM
It works for many other business models as well. A restaraunt works well because most customers purchase way more than the coupon value on their visit. Hardly anyone goes to a restaraunt alone and by the time they order a couple drinks and a side dish, the restaraunt is already ahead of the game. The mark-up on food allows for a lot of couponing to be successful. It also works extremely well for services that are traditionally WAY overpriced with their normal published rate. It's not an accident that laser hair removal places are featured on these sites every couple weeks. It also works well for places that have little or no variable cost for additional customers (theme parks, sporting events, theatre, cave tours etc.). Those places are obviously thrilled to be featured or they wouldn't keep repeating their ads over and over.

I have a couple other businesses that I can't possibly make it work for because I don't overprice them and they don't generate repeat business.

I realize you're trying to compete with these companies, but you need to be fair to them. They've discovered a model that works for a lot of businesses. Only a moron would not ask a follow up question if they brag about having 2 million subscribers and they live in a community of 500,000. Of course, it's not for every type of business, but it works for an awful lot of them. I have to beg these places to run my coupon because they have so many other businesses that are already in line. I NEVER have to beg any other form of advertising to take my money!

By the way, we just got word that L.S. is finally going to run our coupon again. We were worried they had lost interest in us since we don't create near the revenue they're used to from other types of businesses. We're very excited.