By now, nearly everyone I know has purchased a Groupon discount coupon. I’ve started to receive daily discount offers from competitors like LivingSocial and Moolala and my family is taking advantage of discounts to places we might not otherwise consider. We try new restaurants, get our cars detailed, wedge in a massage or two; the merchants get a new customer and Groupon heads toward an enormous IPO. What could be better? Perhaps a lot.
The thought is that a deep discount coupled with a positive experience will deliver repeat customers. While this theory seems to be widely embraced, I believe that the assumptions are wrong. From my perspective, it is Groupon that owns the customer loyalty, not the merchant offering the services. The deal seekers and bargain shoppers come in with the expectation of getting an incredible deal with no less than top-notch service. And there is evidence to indicate that they are very willing to jump to online review sites and let people know how (bad) their experience was.
However, a dramatic influx of customers can slow customer service and irritate this new, Groupon-acquired customer. Service levels decrease due to volume and the next thing a business owner knows, their business has been reviewed poorly on Google.local, Yahoo.local, Citysearch or one of a dozen other consumer rating sites. Smiley faces turn to frowns and five-star reviews deteriorate into one-star ratings.
Groupon customers have very little loyalty to a merchant yet, as I mentioned before, expectations for service are high. Think about it: when a business is overwhelmed (having sold 1000 half priced dinners/haircuts/tans/car washes, etc.) the door opens for bad experiences all around. Disappointed customers are already online-savvy or they would not be participating in these discount programs. The ever-increasing numbers of review sites available provide many opportunities to express disappointment. In fact, based upon many conversations with Reputation Advocate clients, we believe that customers who have a positive experience seldom go online to offer complements. In many ways there is no way for a small business owner to win in this business model.
Adding insult to injury, statistics support a growing reality that repeat business is almost non-existent. Customer retention is low. In short, a merchant receives 25% of the retail value of the product or service. That amount is paid out over the timeline of the redemption period, not up front. The business is stressed, and may be forced to compromise service levels, disappointing new customers and triggering bad online reviews. I admit that I may be one of the few that see it this way. In fact, Groupon reported that as of Sept 2011 they had a backlog of 35,000 companies that hope to promote their products and services through this channel.
Be aware: online complaints can come from many sources. Former employees, competitors – or new (discount) customers coming with high expectations, little loyalty and a willingness to quickly let the world know of any disappointment experienced.
Steven Wyer is the Managing Director of Reputation Advocate, an online reputation management company based near Nashville, Tennessee. He is also the author of Violated Online, a book offering practical tips about protecting your online reputation. For more information about how Reputation Advocate can help repair your online reputation, visit the company website at http://www.reputationadvocate.com