There are actually four reasons why discount programs are a lousy way to attract loyal customers. Examples of discount programs include things like frequent flyer miles, coffee punch cards, and yes, Groupon. They’re all marketed under the guise of being a customer loyalty program, but the reality is that they usually breed a group of fickle customers that will flee to another provider, as soon as a better deal is offered. Of the four reasons these discount (loyalty) programs don’t work, Groupon happens to qualify in two of those categories.
- Watered-down effect: If you’ve ever tried cashing in frequent flyer miles, you know what I mean. According to Webflyer, there continues to be a widening gap between the number of miles awarded by airlines, and the number of miles redeemed (down to 7.5%).
- Lack of incentive: Too many programs are designed to make it impossible to see any benefit whatsoever, in the short term.
- Economic Trap: Groupon falls into this category. According to a study done by Rice University, about half the businesses participating in daily deal programs like Groupon, lose money. Which begs the question, why bother? Is sudden exposure to new customers worth losing money over?
- Your not learning anything about your new customer: Ok, granted this isn’t unique to Groupon, but I was reminded of this problem when I redeemed Groupon deal at our local steakhouse. When I quizzed the owner on how he was measuring the redemption rate, average ticket price of meals, or return rate of new customers, he just shrugged his shoulders.
If you want to understand the five ways truly loyal customers will increase your profits, check back soon for my next blog post.