Customer Experience

Customer Experience

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

Groupon – demonstrating the power of group buying and social shopping

January is a month typified by resolutions and a time when consumers traditionally attempt to reduce non-essential purchases and recover from the inevitable festive overindulgence. It therefore – in my mind - serves as the perfect time for businesses to trial innovative ways to raise awareness of their offerings in the hope of attracting new customers. Groupon, a “deal a day” website along with competitors including LivingSocial and Daily Deal have been enjoying huge success enticing new customers to local businesses, with Groupon recently rejecting a reported $5-6 billion acquisition by Google. Their business models appear to have clear potential in an increasingly technology savvy, socially networked world.

In this weeks' blog I'll assess their approaches and recommend the lessons marketers can learn from successful group buying sites such as Groupon - exploring how they make the most of consumers’ desire for deals whilst cleverly incentivising the socialising of deals through the increasingly ubiquitous social networks.

Groupon

Businesses online rarely benefit to the extent of their offline counterparts when it comes to spontaneous purchasing and it is surely harder for them to elicit an emotional ‘impulsive’ buying response from consumers given the lack of proximity in the buyer/seller relationship. Added to this the complete price transparency of the web – fostering more rational and considered behaviours - and the fact that price competition is so intense only makes the task of standing out in a congested, information overloaded environment that much more difficult.

The web clearly presents a fresh set of challenges (website Trendwatching explores some further examples of changing consumer behaviours in its article titled Price Pandemonium.) for businesses to raise awareness, reach customers and encourage them to buy their products. One company that has tapped into consumers' desire for a good deal whilst giving them the ability to share these 'socially' is Groupon.

Groupon, reported to be the second fastest growing internet company ever (behind Youtube in terms of the speed to reach £1 billion valuation) and their competitors have built online businesses by applying a number of classic marketing techniques whilst making the most of the increasingly social nature of the web and consumers' propensity for deals. A recent article in the New Yorker points out that Groupon is unlikely to transform the web in the way that Facebook, Twitter and YouTube have. Instead it suggests Groupon has a more 'curatorial' role in working with consumers, facilitating this group buying phenomenon.

So how do group buying sites such as Groupon work?

For the uninitiated, Groupon send a daily email round to their list of 50 million subscribers in 35 countries offering discounts (essentially acting as a broker) with local businesses including shops, restaurants, beauty salons and gyms. Consumers are encouraged and incentivised (typically £6 per referral) to share the daily deals – typically expiring that same day - on social networks. Once enough people sign up the deal is announced as 'on' and becomes live. The notion is that of impulse buying combined with social buying power - and it clearly works.

What do businesses gain from participating with such websites?

Exposure and awareness. The deals they offer on behalf of local businesses appear to be an easy, relatively low-risk way to make new customers aware of products and services – particularly beneficial for a small business. A restaurant owner for example could entice new customers with 50% off a main meal and only give customers the option of a fixed price rather than a la carte menu, therefore perhaps enticing them back to return and pay full price.

Since responses can be tracked, there is also the fact that responses to Groupon ads can clearly be measured for effectiveness which is a benefit for businesses in terms of assessing ROI.

What is it group buying websites do so well?

From my own experiences as a subscriber to Groupon for the past four weeks, three areas have stood out:

1. Building strong relationships with demographically targeted subscribers

Being a marketer myself I quickly assessed the diversity of offers available and to me the core target is the 18 to mid 30s urbanites. These are young people who are perhaps yet to find their 'rhythm' in life and are typically individuals and groups who are most willing to try new things out with friends, and are willing to spend. The emails are targeted at their demographic so save them the time having to find deals themselves.  It's not that these people are not marketed to already – I’m one myself – it's just a far more effective way of marketing directly to them.

2. A focus on the short-lived nature of deals and excitement

Groupon's advertising copy is well written and enticing and the offers make it clear that they are short-lived. For the serial procrastinators amongst us (and those looking for something to do on an evening!) this is a very effective call to action as the deals typically last just 24 hours.

Have Groupon taken something we all love – a good deal – and made it cool again? Perhaps. I don't from my own experience feel too bombarded by the daily emails. Ok, so the emails are not particularly well targeted (I recently received an email for fish pedicures!) but then I have only purchased one offer so they have little idea of my preferences. Clearly there will be a temptation – as with all email marketing – to overload subscribers with deals and I hope they don't go down this route as there is a fine line between awareness and email spam.

3. Taps into human emotions and encourages sharing

I have always found that the most effective marketing targets human emotions. Nike and Apple are particularly good at this. I sense that both greed (I want to have this offer) and sharing (feel good factor from spreading a message that benefits others) are the key emotions that Groupon is subtly targeting. Typically - with social media at least – consumers will share experiences with their network when they are negative or exceptionally good such as the daily deals. Groupon - with its reward structure for referrals, encourages people to get their network to sign up to activate the deals whilst giving businesses a clear PR vehicle to spread their message.

What can marketers learn from this?

The message for me is that if you want new customers make sure your offers are demographically targeted, compelling and easy to socialise thus encouraging customers to share your marketing message for you. From an ROI perspective, it is interesting to consider whether the perceived success of making new customers aware of your products – albeit at a heavily discounted meal price – results in a higher lifetime customer value for your targeted segments. Clearly not all customers will return as full price paying consumers, but, I do wonder what percentage can be upsold as full price paying, and the percentage that will spread the word by sharing their experiences. A final question for marketers is the challenge of how to keep offers fresh to prevent oversaturation and the daily deal websites fast becoming fads.

For me Groupon, LivingSocial and Daily Deal are great examples of how social media is giving rise to exciting new business models whilst keeping a focus on the customer through a number of well-executed, classic marketing techniques. There is however - from my own experience - work to be done in the targeting of the offers, as my fish pedicure example proves!

What other lessons do you think Groupon can teach marketers? What are your experiences of social voucher sites such as Groupon? Do you think their novelty value will last? How can they better target consumers with offers without being overly intrusive?

About the author

Mat Sloan
Mat Sloan

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