Do Daily Deal Coupons Work?

Daily deal coupons are all the rage these days, led by Groupon and their numerous competitors. Since I have a pretty extensive background in consumer promotions, particularly couponing, I tend to get pulled into discussions on daily deal coupons and I often notice the frequent related media coverage. Setting aside all the buzz around them, they’re really just a new twist on an old marketing tactic, but do daily deal coupons work?

Traditional paper coupons and price discounts have worked quite nicely, since the late 1800s in the case of coupons, and I suppose for centuries or millennia in the case of price discounts. One of the main reasons to discount is to attract new customers to try your products or services, and then hopefully sell them more stuff and/or turn them into profitable repeat customers who will pay full price on future purchases. Daily deal coupons can certainly do this.

It is beyond the scope of this newsletter to address the dos and don’ts of daily deal coupons, but you’ll get some insights if you Google “Groupon horror stories” and “Groupon success stories”. I will say that you’ll want to have a way to limit response levels or to make sure you can live with whatever level of response you get.

To address whether daily deal coupons work from a measurement perspective, my answer leads to more questions, starting with “Well, it depends, what did you want them to do for your business?”

Drilling down a bit further, answers to the following four fundamental questions should inform the planning, objective setting and measuring of any marketing program. Clear answers should point the way to what and how to measure, and whether the program “worked” to meet its objectives.

Let’s look at each of these.

1. Who are you targeting? While many answers are possible, the best answer is often “new customers” to help grow your business.  Merchants benefit most when they structure their daily deal coupon offers to attract new customers, rather than subsidize existing customers who would have bought without a coupon.

2. What do you want them to do? You’ll want new customers to buy for the first time whereas you may want existing customers to buy something more or different than usual. In addition, you might try to prop up an under-performing aspect of your business, such as your slow month or time of day, or a product that isn’t selling well.

3. How much value will that create for your business? This one is especially important and a bit tricky. You’ll need to consider the short term (this transaction) and the long term (the customer’s lifetime). Ideally, you’d like this transaction to create enough value to at least cover your costs, but if it doesn’t you’ll need to make up the difference and ideally much more over the lifetime of those customers who buy your daily deal.

Short Term – This Transaction: Consider your variable cost of providing the products or services you will sell through this coupon and compare that to the revenue from your share of the coupon selling price, which you will split (often 50/50) with the daily deal provider. Also, consider whether you’ll receive your share of the revenue when the coupon is bought, or when (and if!) it is redeemed.

Long Term – The Customer’s Lifetime: How long is the lifetime of a typical customer? On average, how many times will each customer buy over that lifetime, and how much will they buy each time? If each new customer’s lifetime is just this one transaction, it may not be worth your while to offer this coupon. But, if you can convert enough of those new customers to loyal repeat customers for many years, then discounting to get them in the door should be worthwhile.

4. How many people do you need to do that for this expense to be worthwhile? Once you know what a customer is worth to you over whatever time frame you want to use, and you know your costs, then you can set an objective for how much value (metrics include new customers, number of transactions, transaction values, etc.) you want this marketing investment to generate. Then you can measure against those objectives.

Clear Objectives Make Measurement Easier

To measure whether or not a daily deal coupon or any marketing program worked for your business, you need clearly defined objectives. In other words, to measure whether you have succeeded, you must  first define success. Clear objectives will tell you what metrics to use and where to find the data.

It’s one thing to attract new customers with discounts, and quite another to keep them. Can you convert discount shoppers to loyal customers? Success will come down to your company’s ability to deliver a superior customer experience in the short term, and to build a positive relationship with each customer over the long term and maximize both the lifetime and the value of as many customers as possible. Of course, that’s something every business has to do well, however they find their customers.

Daily deal coupons may be a relatively new marketing tactic, but there’s nothing new about the fundamentals that determine whether you should use them, whether you’ll be successful and how to measure your success. Clear objectives will help you to decide whether to use daily deal coupons and to evaluate whether using them worked, however you define success. To compare the success of a daily deal coupon program to any other type of marketing program, well that’s a topic for another newsletter.