Landy Ung | co-founder/CEO, 8coupons – the largest hub for local deals
As a consumer, I’ve had many personal experiences with daily deal promotions throughout the past 2 years. Since 8coupons is firmly planted in the middle of the daily deal space, my team and I are always out and about "mystery shopping" new deal providers. 8coupons has direct relationships with over 200 local daily deal companies including Groupon and Living Social. We are vested in the success of this industry and hope to contribute to its continued growth and success.
As such, I’m a bit reluctant to admit that I’ve noticed a sharp decline in the quality of service at businesses that run daily deal promotions. This problem seems to be most apparent within the services category for businesses such as laser hair removal, salons, spas, teeth whitening services, etc. These are actually the businesses with the highest margins and are best fitted for daily deal promotions.
As an example, I was excited to see that a spa I’ve been to many times before, was running a daily deal promotion. I quickly bought the deal and made an appointment. It was really unfortunate that the experience was night and day from my previous ones at that spa. The staff wasn’t as friendly or thorough and I felt rushed in and out, like a number on my coupon.
What’s even more unfortunate is the fact that the spa lost a loyal customer and are not doing a good job retaining new ones coming in through the daily deal promotion. These businesses get so swamped and overwhelmed each time they run a daily deal, that service becomes automated and quality slips. Some businesses can spend their entire year servicing customers from just one daily deal promotion.
As merchants are becoming savvier about how daily deal marketing works, they start to focus more on quantity over quality. There’s certainly not a lack of competition in the market (over 50 local daily deal companies in NYC alone), so businesses are negotiating better rates. Some businesses have learned the system so well that they are living off of daily deal promotions and running them with every company that calls in. It has gotten to the point where when a customer walks in or calls to make an appointment, you automatically get asked "Are you using a voucher?" before they know anything about you. This actually happened to me at a different spa which I was grateful for because it prompted me to go look for the voucher before I called back to make an appointment. It saved me a nice 50%.
I’m sure there are many great experiences as well but there’s no doubt that quality does tend to suffer when get products get "mass produced", especially if your product is a service. Since most daily deal companies do not share their list with their clients, these businesses are trying to retain customers on their own by offering even better deals directly, bypassing the daily deal provider. Nonetheless, the business’ inability to keep up with the quality of their service during these daily deal promotions directly contributes to the low retention rates and are even at risk of losing their loyal customer base. I think there’s a huge opportunity here to create a win/win solution for both sides allowing the merchants to trust that their marketing company will help them with, not just customer acquisition, but with retention and loyalty as well, so they can focus on hair removal, stying hair, baking pizza, etc. I believe this is one of the missing components in the daily deal formula. The main goal for businesses running daily deals, is to establish repeat customers who come back and pay full price.These quality issues and lack of consumer loyalty is bad for both the businesses and the daily deal companies’ longevity. Could this downward trend in service be a contributing factor to why some critics say that the daily deal space is an overheated bubble?
However, there are a few companies that are differentiating themselves through quality over quantity. Daily deal providers that are focused on niche target segments or categories are getting the most praise from both businesses and consumers. These companies seem to be on the right track and I expect we will see more market segmentation and verticalization in the near future which would help solve some of these issues. There will always be the large mass market players like Groupon and Living Social, but can these companies, even with their scale and resources, serve businesses and consumers within the spa category better than a company that exclusively focuses on spa? It’s been a gold rush where now, more than 500 daily deal companies in the U.S. alone, have simply jumped into the space without much thought into how to address some of these gaps in the daily deal model. I encourage new companies entering this space to think about market segmentation and other ways to create a win/win solution for both consumers and businesses. I’m sure a year from now, these huge opportunities will be filled by very successful companies.