Stingy B.C. consumers are pressuring merchants to offer daily deal discounts through Groupon-style ventures or risk losing business to competitors.
B.C.’s 1.75% consumer spending growth was the lowest in Canada in 2011’s second quarter compared with 2010, Moneris Solutions reported July 14.
However, according to recent surveys, shopkeepers who hop on the hot new marketing trend of offering daily deal discounts can be devastated if they don’t first develop a strategy for how to convert coupon-buyers into long-term customers.
ForeSee Results noted in a June survey that 38% of daily deal buyers – the largest share – said they were already loyal to the business offering the deal.
A bigger risk than offering regular customers deep discounts is that new customers lured by a daily deal don’t buy anything outside their coupon.
“These price discounts are not trivial,” said UBC Sauder School of Business marketing professor Paul Cubbon.
“It is not unusual for the deals to be half of the regular price for the consumer. Groupon then typically takes another 50%. That means that if I have something that’s $100 as a selling price, as a retailer, I’m going to get $25.”
Cubbon has studied daily deal marketing programs extensively. He said the emerging marketing strategy is a complicated phenomena with no blanket answers for whether it will work for specific retail sectors.
He advises those considering offering a daily deal to:
- offer small preliminary daily deals before doing a large one;
- follow the money by calculating cash flow and profit margins if efforts to cross-sell or up-sell are unsuccessful; and
- consider the possible hit to the company’s brand reputation that providing a half-price product could cause.
C:EHKO hair salon owner Farshad Shafiekhani is one of the countless small business owners who have started to offer a daily deal to attract new customers.
Sparse walk-in traffic at the Hornby Street salon that he opened last fall prompted him early this year to experiment with a 400-coupon offer using Toronto-based WagJag.
Other discount deal sites include DealMate.ca, SwarmJam and Living Social. Competition is growing quickly given that, as of July 20, daily deal aggregator Yipit was tracking 482 daily deal sites. That’s up from about 20 in early 2010 and the number keeps growing.
AT&T Interactive launched a daily deal program on July 18. The next day, American Express announced a partnership with Facebook to launch a daily deal site.
Shafiekhani found out that WagJag’s consumer reach was “scattered.”
Coupon buyers came from as far away as Merritt and Chilliwack, and they showed little inclination to return without getting a half-price deal.
Shafiekhani next offered 1,000 coupons on Groupon, June 2, and the offer sold out within 24 hours, largely to people who live in Vancouver, he said.
Coupon buyers paid $39 for:
- a $60 haircut;
- a $22 scalp massage; and
- two full-size hair-care products worth $23.
Shafiekhani gets to pocket only half of the $39. So it’s imperative that his staff up-sell his customers.
“There’s the potential for all those customers to get colour. So, we did a 25% discount on colour services only for Groupon customers,” he said.
“There’s a lot of pressure on staff. This is a chance for them to create retention. But, it’s so far, so good.”
Glitches in processing some credit card transactions mean that about 30 of his Groupon coupon purchases failed to complete.
Shafiekhani will get his share of coupon proceeds in three payments:
- after one week;
- after 30 days; and
- after 60 days.
Thus far, approximately 300 buyers have redeemed their coupons. The coupons are good for one year so it will be a long time until Shafiekhani knows how many coupons won’t be redeemed.
His salon is booked solid until September, but he is already planning his next offer – this time with a Groupon subsidiary called Groupon Now. It uses demographics, past buying behaviour and GPS technology to more carefully focus the coupon offer at likely repeat clients.
Buyers have a much shorter amount of time to use their coupons, and Shafiekhani has more freedom to include restrictions, such as Mondays-only, on the coupons.
The daily deal marketing strategy has been successful enough that he has found joint-venture partners who want to open C:EHKO salons in Toronto and Calgary.
Shafiekhani will hold a 51% stake in those salons, which he expects to be in operation by next summer.
He’s also negotiating with a partner about potentially opening a salon on Cambie Street, which would be his second in Vancouver.