Online Coupons Get Smarter
By Ian Sherr
August 25, 2010
When Jennifer London cut a deal with Groupon Inc. to promote her smoothie
shop in an email, she wasn't sure how many people would show up for
discounted drinks.
Thirsty New Yorkers bought more than 1,300 of her online coupons, and "it kind
of blew my mind," Ms. London said. People redeemed roughly 900 of the
coupons over six months at her small Xoom NYC Inc. shop, including a crush in
June, but she was disappointed that few became regular customers.
"Most of the people who came are not from this neighborhood—I most likely
won't see them again," Ms. London said, adding she wished she had limited each
person to three coupons rather than 10. Fortunately, she said, not all the
coupons were redeemed. "I definitely would have lost money if everyone had
shown up," she said.
Groupon and its competitors, which build buzz by sending out a daily email
alerting subscribers in a city to a local bargain, are listening to gripes like Ms.
London's and recasting their operations. Among the new approaches: computer
programs to better target consumers with personalized deals and staff on the
ground to help merchants.
Practically unknown a year ago, social coupons have boomed by offering
consumers another route to discounts while providing small-business owners
guaranteed revenue and a flood of new customers. The coupon sites typically
keep between a third and half of the coupon value as their fee.
Dozens of social coupon websites have sprung up in recent years offering deals
on everything from pedicures to hot-air balloon rides. Even dentists have offered
discounts via Groupon.
The Chicago-based company says 35,000 businesses are currently waiting to be
featured on its site, with 700 new U.S. businesses approaching it each day.
"For every business we feature, we pass on seven," Groupon Chief Executive
Andrew Mason said. The company, which generally keeps 50% of the coupon
price, expects to do $400 million in revenue this year. About 13 million people
have registered to receive the company's emails.
But the popularity among merchants and customers has had an unexpected
consequence: Some businesses have attracted more bargain hunters than they
can handle. And once in the door, they're hard to hold on to.
Groupon says its research shows 22% of its customers make a repeat visit to a
business after using its coupons. But looking to improve its pitches, the company
is rolling out a computer program that filters deals a subscriber sees based on
their gender, buying history and interests, among other things.
The feature, currently in six of its markets, lets Groupon rotate more deals among
its customers in a way that fewer of them will buy at the same time. "With
personalization, we are in every way interested in reducing the number of
customers we send to a business at once," Mr. Mason said.
Some rivals, such as LivingSocial of Washington, D.C., have also begun to
analyze data they collect from customers to discern buying patterns and better
tailor deals for each business so that capacity isn't a problem.
Some coupon sites have hired staffers in order to help merchants handle phone
calls at the beginning or end of a coupon period. "If there is an issue, there's a
LivingSocial employee on the ground that can help you work through it," said
CEO Tim O'Shaughnessy. LivingSocial has about 300 employees, while
Groupon has 500 in the U.S.
When Andrea Stern chose to work with a smaller group-buying website to put
together a deal for her company, Satori Yoga, she got very little help deciding
how much she should charge and what exactly she should offer.
Now that she's just finished her third deal with a third website, she's learned how
to structure the deals so she doesn't lose too much money. But she's still having
trouble getting customers to come back to her San Francisco studio.
"You can't blame them when every day someone else is trying to give them a
better deal," Ms. Stern said of the bargain hunters.
It's a common problem, coupon site owners say, and there likely isn't an easy fix.
"If you're a Dunkin' Donuts competing with the other Dunkin' Donuts down the
block, there will be a flash of customers who came to you just because you had a
deal for half off," said Thomas Aabo, co-founder of DealSurf.com, a website that
aggregates bargains from around the Web.
He said unique businesses are the most likely to have repeat business because
otherwise, the customers will just move on to the next deal.
It's a lesson that Ms. London at the New York smoothie shop learned the next
time she tried a social coupon. That time, she worked with smaller deal site,
ScoopSt.com, to put together a food event with a few local businesses to target
local customers.
Ms. London said it helped establish her business with local customers. "It got my
name out there and people have come back to spend," she said. "It was a
different experience for sure, and it had a lasting impact."