63% of Groupon buyers were already your customers
May 4th, 2011 • Posted by Seth Gardenswartz • Permalink
The only sane reason to sell your services at half price, and pay someone like Groupon or LivingSocial half of what’s left is to create new customers. So we at Spaboom (and many other writers) keep asking about the return rate for Groupon/deal buyers. Groupon has cited a 22% figure, while we have estimated 12%. Naturally, we were shocked when a new study by Lightspeed Research showed a whopping 65% of respondents returned to a business where they have used a daily deal/Groupon. If that number is correct, we might have to admit we were wrong about the effectiveness of deal sites for creating new customers. Sadly, said admission will not be necessary.
First of all, the 65% number is deeply flawed. "Have you ever returned to patronize a business where you previously used a deal?" is how the question was asked. So if you purchased 10 deals over any period of time and returned to one of them for a single visit the answer would be "yes" thereby creating the 65% figure. That would be like asking gamblers at a casino if they have ever gotten money out of a slot machine and calling the ones who answered yes "winners."
More importantly the return rate is simply the wrong question. Greg Sterling dug a little deeper found an even bigger problem with the return rate data. It turns out that most (63%) of the Groupon/daily deal buyers were already regular customers of small business offering deals. Rather than new customers, Groupon and its clone army are hitting your regulars who just take advantage of a sweet deal at their favorite spa, salon or restaurant.
Paying 50% to offer your existing customers a 50% discount does not make much sense. Instead of getting frustrated by the fact that your clients buy these deals at half price you can use the phenomenon to your advantage. Email your clients and Facebook fans the deal directly and give them an incentive to share it with their friends. It takes a little work (that you need to do anyway) to build your email and Facebook lists but if you do it now you can promote your deals at 6-10% of the cost compared to Groupon.