The latest buzz in the retail industry is the amazing proliferation of Flash Sale and Daily Deal sites like Groupon, HauteLook, Rue La La and others. In fact it was recently reported that there are 43 such online business in Chicago alone. That means, conservatively speaking, there are hundreds of these companies competing for consumer attention in the inbox on a daily basis.
It's true that the business model is hot – the proliferation of sites is proof of that. However, this influx of sites also brings with it the risk of over saturation, with consumers eventually tuning out the messages. Furthermore, brands need to consider whether use of such sites will create a segment of customers who are loyal to discounts and not the brand.
The way to combat both problems is through the adoption of sophisticated email marketing strategies that foster engagement and loyalty. Given the low barrier to entry in this space and the massive competition for inbox attention, here are some basic principles that need to be followed to ensure long-term success.
Build Loyalty
One of the potential perils of Flash and Group Buying sites is the reliance on discounts to drive brand and subscriber loyalty. If a consumer subscribes to Groupon, Living Social, Mamapedia and Wedeal, what keeps them active and engaged in one program could easily cause them to be inactive in another. If the only driver of these sites is the deal and the discount, then the entire business model could be a race to the bottom with profits for both the companies and advertisers declining over time.
The trick is for the deal sites to build loyalty around not just the offers but the subscriber experience as a whole. Email marketers have been doing this for years in their retention marketing programs. Sophisticated brands create email communications that sell product but also add value with content and insight not available through other communication channels.
Travelocity’s Roaming Gnome Newsletter does an excellent job of educating travelers on destinations and providing access to insights from the travel community first, and selling air, hotel and car rentals second. Mamapedia is another example of a deal site that offers targeted, valuable content to members alongside the daily discounts. Most notably, companies like HauteLook (recently acquired by Nordstrom’s for 180 million in stock) have developed a brand following within the member base. Customers expect and anticipate communications from HauteLook. Their investment in developing complex segments and product categories that are relevant to their audience almost guarantee ongoing engagement with the subscriber.
Put the Subscriber in Control
Another pillar of successful email marketing has been the desire to put the subscriber in charge of subscription options, email frequency and even digital channel preference. As consumers have more options for Daily deals, the site that allows the consumer to customize their experience should win out in the long run. It is unlikely that a consumer will personalize a profile for more than one provider, and the provider they select to set preferences for will have the advantage of better insight into consumer interests. It is up to the deal sites to use these assets to create highly relevant communications.
While the use of preference centers is widely believed to be a “best practice” among email marketers, very few brands have executed and implemented meaningful preference management capabilities. This could be an opportunity for Deal of the Day, Flash Sale and Group Buying sites to leapfrog many traditional email programs.
The Future of the Industry
At the end of the day, there are simply too many players in this space and consolidation will start sooner rather than later. Additionally, it won't be long before some forward-thinking brands decide to cut out the middle man and offer daily deals on their own. With the right email partner to ensure real-time delivery of their sales event messages, brands can join the fray without too much difficultly. The companies standing at the end of the consolidation will be those that have moved beyond the deal and began building loyalty within the subscriber base by staying local, relevant and putting the consumer in control of the relationship. Not new concepts for retention-based email marketing, but completely new territory for email acquisition strategies.
COMMENTARY: It's no secret that I have been tough on group buying or deal sites. There are just too many of them In a previous blog posted dates January 2, 2011 titled, "Groupon or 'Groupoff''? Controversy Surrounds Highly Successful Group Discount Startup Groupon", I highlighted a study by Rice University concluding the service is more a boon to consumers than businesses. Of the 150 businesses it surveyed in 19 cities, 66 percent said Groupon promotions were profitable, while 32 percent said they weren't. More than 40 percent of the companies wouldn't run a Groupon offer again.
In an earlier blog posts dated September 30, 2010 titled, "Groupon, The Huge Social Buying Site, Raises Doubts It Has A Sustainable Business Model, Could Hurt Chances Of An IPO Says Battery Ventures" , and dated October 30, 2010 titled, "Groupon, The Social Coupon Site, Causes Merchants To Lose Money, May Have An Unsustainable Business Model", I again mentioned the same Rice University study in my commentary, which echos the above article by By Ryan Deutsch, VP of Strategic Services
The Rice University Study also found:
- Among the service businesses, restaurants fared the worst and salons and spas were the most successful.
- Businesses with unprofitable promotions reported low rates of spending by Groupon users beyond the deal’s face value and low rates of return to the business again at full price.
- Respondents indicated they had largely negative perceptions of Groupon’s competitors.
This quote taken from the Rice University study puts everything into perspective:
“I think these findings show that social promotion companies need to better balance consumer appeal with positive outcomes for the small businesses offering them,” Dholakia said. “Right now, these deals are tilted too far in consumers’ favor.”
I totally agree that the group buying or deals sector is now over-saturated. Besides industry leaders Groupon and LivingSocial, which capture 90% of the total market, there are over 200 other insignifican group buying or deals sites. The space has reached a critical inflection point, where the deals offered no longer provide value to the consumer, the group buying site is the only one making money off the deals, the merchants are losing money, and the industry enters a period of consolidation and very slow growth
The Great Recession has made consumer's very price sensitive. Consumer frugality is here to stay. It has become a key element in the buying decision. One extreme case is Wal-Mart's strategy to reduce its store items and increased prices. The result was a customer revolt, drop in sales, and Wal-Mart has changed its strategy to focus on offering the best prices.
In an article dated December 28, 2010 appearing in Business Insider, Gartner Research's Hype Cycle (see below) was used to explain the period of hyper-growth experienced by group buying and deal sites. According to Gartner, the group buying and deals sector entered a period of near exponential growth driven by a Technology Trigger in 2009 as the recession took hold. The technology triggers included daily deals, digital coupons, email coupons, mobile coupons, and so forth. By mid-2010, the Hype Cycle had reached a Peak of Inflated Expectation, as more competitors entered the sector, and the market finally became over-saturated. The group buying and deals market is now entering a sustained period of decline and market segmentation, and sometime in 2011, the industry will enter the Trough Of Disillusionment, the stage when the industry finally hits buttom and full consolidation occurs, leaving the market leaders--Groupon and Living Social--with about 90% of the total market, driving weaker companies out of business, and leaving any survivors to fight over the remaining 10% of the market. The survivors will adjust their business models by segmenting geographically, demographically, lifetyles and by industry. The group buying and deals market now grows a lot slower, entering The Slope of Enlightenment stage, which eventually plateaus into The Plateau of Productivity stage, when growth finally stops altogether.
I know I might be criticized for saying this, but group buying and deal sites are not concerned about developing customer loyalty for the merchant. The merchants bear a lot of the blame as well. They don't seem to be concerned with customer loyalty, but sales. The whole strategy of group buying and deals sites is to put as many deals in front of consumers as possible, in order to offset the high merchant attrition rates and maintain market share. This is a self-destructive business model that cannot be sustained over the long-term as can be clearly seen by the Hype Cycle.
Courtesy of an article By Ryan Deutsch, VP of Strategic Services appearing in the February issue of the Strong Mail Advisor
I quite agree. Group buying and deal sites have their own goals and it does not include giving you loyal customers. They are already competing for loyal customers for their business. As a customer, I would rather watch out for new deals on websites than go to a certain brand/product's store or website.
Posted by: Merchant Services | 04/28/2011 at 10:10 AM