The Groupon loyalty initiative: Discounting customer relationships?


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Groupon’s announcement of a new customer loyalty program follows on the heels of a rash of bad news that Wall Street is watching closely. Maybe that is why it seems that the program they just announced isn’t fully thinking through some of the most important loyalty marketing principles. The new program is thinking, as Wall Street does, in terms of dollars and not in terms of customer relationship equity.

Here’s how Groupon says their customer loyalty program will work: the deep discounts that merchants serve up to acquire new customers and more traffic will be augmented by even deeper discounts if customers spend more. If I’m digesting this news right, this would be the equivalent of retail-store window signs announcing, “Everything 50% off in the store–spend over $100 and we’ll give you 80% off on your next purchase!” The concept seems to translate to simply an even bigger acquisition discount.

This announcement precedes Groupon’s intended IPO – and follows at least one prior loyalty program test in which purchases earned “G’s” (points) toward free future Groupons. Maybe the pressure of that huge push for IPO capital, along with a drastic restatement of their revenues and lack of profitability, explains why they haven’t fully considered how to apply the core fundamentals of a sound, sustainable loyalty strategy that are easily within their reach:

Create a value proposition that blends hard and soft benefits to take the focus off price. Discounts can be matched by competitors, and the customers swayed one way by price can be just as easily swayed another by an equal or better price. Soft benefits, such as recognition and privilege, aren’t as easily matched, and are more memorable to customers. Those benefits could create an emotional equity stake in the customer’s relationship with Groupon and their merchants. Yet, Groupon’s new program focuses even more heavily on price reduction, without regard for relationship enhancement.

Create dialogue with your best customers. Groupon has incredble customer reach — and now is the time to leverage it. As COLLOQUY Contributing Editor Bryan Pearson has pointed out, Groupon could — among other initiatives — ask members “to fill out additional short surveys to further enrich the existing data. Enhanced pictures of these consumers emerge to better tailor offers, get more buy-in and earn loyalty.”

Create a sustainable advantage – for all stakeholders. Those stakeholders include include Groupon, of course. Creating a sustainable advantage includes allowing customers to earn recognition and rewards beyond discounts for their ongoing loyalty. And – perhaps most important for Groupon at this critical juncture – it creates a sustainable advantage for merchants, too. Will structuring this program so that merchants serve up even deeper discounts to grab a slightly larger spending commitment help drive customers back repeatedly to those merchants? The jury is still out on that. And the rate of customers returning has certainly been one of the biggest complaints voiced by merchants about Groupon to date.

In COLLOQUY’s research over time and across cultures, we clearly see that the willingness to pay a premium in the face of cheaper alternatives is one of the top hallmarks of customer loyalty. With that in mind, here’s COLLOQUY’s daily deal: Recognize customer tenure and spend, target offers based on purchase history and stated preferences, and give best customers privileges that outweigh the value of any dollars-off deal, and customers will give you full, undiscounted loyalty.

Republished with author's permission from original post.

Kelly Hlavinka
A partner of COLLOQUY, owned by LoyaltyOne, Kelly Hlavinka directs all publishing, education and research projects at COLLOQUY, where she draws on her broad experience as a loyalty strategy practitioner in developing articles, white papers and educational initiatives.


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