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Has the Daily Deal Lost Touch?

Guest Post by Bart Sevin, Ph.D.

It would go against logic to think that companies wouldn’t consider the customer first, especially today. Yet, I was surprised to read in a recent Fast Company article, Do Groupon and LivingSocial Do More Harm than Good? that despite taking in close to $3 billion in 2011, these daily deal providers seem to be declining after their meteoric rise.

While the concept seems simple, spend $20 to receive $40 to use in Restaurant A for example, why is it that there has been such significant decline?  One of the reasons many deal providers are losing money is the attrition of merchants who advertise via deal providers. The idea is that businesses can expand their customer bases quickly by reaching the masses via daily deal websites and email distribution lists with discounts that get new customers in the door, even though merchants typically lose money on the initial deal offering. Merchants of course accept the initial loss with the hope that once customers come into contact with their products and services, they will become repeat customers who continue to frequent their businesses, paying full retail prices after the deal is used. In most cases, that isn’t happening.

When new customers fail to turn into repeat customers, where does the accountability lie, with the deal providers or the merchants? Since it rarely helps to assign blame and point fingers, maybe it’s more helpful to ask, what can be done differently to increase the probability that customers will return for the same or new products and services after their initial experience?

Behavioral science offers a useful conceptual framework for understanding why this problem is occurring and what to do about it. Using the ABC model, in which the B stands for behavior, it tells us that there are two things that influence behavior, namely antecedents and consequences represented by the A and the C in the model. We know antecedents come before and prompt or trigger behavior, and that consequences, both positive and negative, follow behavior and determine whether it is strengthened or weakened over time (i.e., whether it’s repeated or it stops). So when customers purchase deal coupons, the deals themselves are antecedents for customers that prompt them to go try a merchant’s products or services maybe for the first time, and the deals do this well by reducing the costs associated with patronage. The experience the customer has when they interface with merchants is the consequence that determines whether customers will repeat the behavior of buying goods and services again or whether they leave and never return. The customer experience provided by the merchants, then, is where the rubber meets the road.

In the examples provided in the article of merchants who have and have not had success with deal providers, the ones who provided the best customer experiences got the most repeat business, and in turn returned to offer more deals through the providers. The ones who provided poor (i.e., negative) customer experiences generated little to no repeat business and in turn blamed the deal providers, and didn’t advertise with them again.  It is more than likely that the problem some merchants have in getting repeat business from customers is not exclusive to customers buying daily deals. But, if the customer experience is substandard, repeat business isn’t likely to be obtained regardless of how the customers were initially connected to the merchants.

With that said, what can merchants and providers do differently to develop a better return on their investments? Merchants can begin by asking some important questions such as, What do I want (new) customers to do and say when they walk in the door with (or without) deal coupons? One objective might be to get customers to ask questions about other goods and services and state what their current needs are. If so, merchants can ask, What can we do and say to prompt and reinforce these types of behaviors from customers?

If deal providers want repeat business from merchants, they should ask questions like, What do we want merchants to do and say when they advertise a deal with us? Objectives might be for merchants to first state a goal of how many deals they want sold and then acknowledge meeting or exceeding the goals. Providers might also state goals that report back on the amount of repeat business generated through daily deal advertising. Providers can then further ask, What can we say and do to help increase the likelihood of merchants’ success in these areas? Providers might consider offering recommendations and then following up with merchants.

In my research for this post, I spoke with a representative from RapidBuyr, a B2B daily deal provider specializing in providing companies with access to higher dollar services and products. He offered data-based guidance on the types of deals merchants are likely to sell. He also asked about the types of products and services we offered, and what kind of experience potential customers were likely to have if they purchased a deal. RapidBuyr representatives make a practice of circling back with merchants to follow up on the outcomes from advertising deals. In my opinion this deal provider is doing it well.

Asking these types of questions and offering guidance on strategies likely to help merchants reach their objectives are the types of provider behaviors that are likely to help merchants generate repeat business from advertising daily deals, which in turn will help providers get repeat business from merchants. Whether deal provider companies last over the long term remains to be seen, but it seems that a shift from providers simply advertising any and all merchant deals, to providers partnering together with merchants on strategies and providing ongoing support to identify what worked and what can be improved will be critical to the long-term success of the daily deal industry.

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