By Hunter Madsen
Do deals still build customer loyalty in the emerging Age of the Deal? Is traditional customer loyalty even possible when "everything's on deal"?
"Our definition of brand loyalty is changing as the deals pour into our inboxes," lamented a marketing blogger a few months back, "Now brand loyalty is the expectation from us that brands will offer a deal in the next daily email from Groupon, Living Social, Gilt City, Yipit, Yelp, etc."
If that guy was even half-right, then it's time for loyalty managers to take a hard look at the exploding deal economy and figure out their best moves. Here is the emerging landscape.
Footnote: Mark Maier, "Daily Deals Changing Brand Loyalty", Luce Performance Group, July 6 2011
Old School - how deals (used to) drive loyalty
The traditional theory behind loyalty program deals is straightforward. Just as marketers bait their hooks with tempting offers to snare a prospect's first purchase, they make certain "exclusive" deals contingent upon loyalty program signup. Thus lured in, member enrollment increases retention, share of wallet, and brand advocacy, enables more marketing touch points, assists CRM and user profiling, and can provide crucial marketing and product insights.
Many market factors have been chipping away at customer loyalty since the 1970s. These include the proliferation of brands and "me too" products, the declining impact of advertising, less differentiated service levels, and better comparative information on the Web. Yet, as competition has leveled out on other fronts, the compelling power of "special deals for special customers" has remained a core feature of most loyalty programs.
This method for driving loyalty through deals works only, of course, if the customer is able to focus on your brand's offers, and is not already splashing about in a rising tsunami of deals pitched by others. The internet is the tsunami, and it has sired a new industry to support the super-distribution of deals online. Alas, the wave looks unstoppable.
From marketing tactic to social mania. Deals gone wild online.
Web of deals. When you arose this morning to check your email and surf the Web, online marketers for more than 20,000 merchants were lying in wait for you, each of them hoping to snare your lead or sale by posting dozens or hundreds of enticing deals. Some 4000 of the most successful businesses aren't just sitting around, waiting for you to visit their websites. Instead, they work with sprawling "affiliate networks" of online publishers that post their offers across hundreds or thousands of locations on the Web. (One merchant on the Internet Retailer 500 list claims to distribute its offers through more than 300,000 publishers!)
Behind these networks sits a sophisticated infrastructure run by the companies themselves (think of Amazon's ubiquitous book-sale links) or by specialized networks such as Commission Junction, LinkShare, and the Google Affiliate Network. These services carefully track which offers get nibbles at which publisher locations, and help brands dole out commissions to publishers who drive leads and sales.
Deal aggregators tap in. Taking full advantage of this river of deals flowing through affiliate networks, a number of websites, such as Coupon Mountain and Coupons.com, have become aggregators of every deal and coupon they can get their hands on. To make sure they've mopped up every offer out there, aggregators such as RetailMeNot and SlickDeals invite the public to bring in and post good deals that they've found elsewhere on the Web, in a process called "crowd-sourcing."
These sites attract fervent audiences numbering in the millions, yet most ordinary consumers find gigantic deal directories of this sort overwhelming. Even so, their bargain-basement ethos has typified what it means to hunt for deals on the Web.
Along comes Group Buying. To add even more competition to traditional loyalty programs, along comes the notion of "group buying" in 2008, a formula introduced by Living Social, popularized by Groupon, and quickly emulated by a gaggle of some 600 clone-like services across every major American metro.
These services promise to send legions of email subscribers at least one colorful deal per day, price-discounted in the range of 50% to 80% off. In a national U.S. survey conducted for my company last spring by Research Now, fully 58% of adults online said that they were enrolled in one or more deal-of-the-day services.
Unfortunately, group buying as an acquisition tactic seems weakly correlated with the development of lasting brand loyalty. A Rice University study last May reported that just 20% of first-time Groupon customers ever returned to the businesses where they'd used a coupon. But like it or not, the group-buying craze has generally raised the bar on what consumers view as a sizzling-hot deal.
Will daily deals be a passing fad? Skeptics point out that Groupon's traffic has been tapering off, and a major tracking service reported a 25% drop last summer in traffic to daily-deal and deal-aggregator sites. But given their huge market penetration, don't bet the ranch that they'll just go away.
Private Sales up in a flash. The public's appetite for extreme discounting is being whetted further by a new cadre of so-called private sale sites, such as Gilt, Zulily, Ideeli, Rue La La, and Amazon's MyHabit.com. These sites typically take possession of seasonal inventory in the apparel sector, and deploy time-limited "flash sales" to liquidate it at huge discounts. Internet Retailer reports that flash sales volume has nearly quadrupled since 2009, drawing more than 40 million visitors per month, comprising a relatively high concentration of high-income households. In other words, flash sale sites are attracting well-heeled customers who might otherwise be perfect loyalty-program candidates for the high-fashion brands that they are instead shopping on extreme discount.
The Exploding Ecosystem of deal vendors. What emerges from the fragmentation and super-distribution of deals is an eco-system that now encircles consumers with a baffling array of players and a numbing variety of offers across every imaginable channel. Some of the offers recruit for loyalty programs and affinity credit cards, but the vast majority of them incentivize for other kinds of lead-gen and sales.
Within this eco-system, consumers will also find indigenous loyalty-points gambits such as eBates and MyPoints, players such as Points.com that aggregate and convert points across frequent-flier miles and other loyalty programs, and ambitious in-house portals such as those of Mastercard and Amex, comprising offers from an expanding array of loyalty coalition partners. To consumers, the raffish scene must look a bit like the Star Wars bar.
What does all this market commotion mean for deals as a loyalty-building tool? You'll find some answers in Part II, available at Loyalty Management Online: Deepen or Cheapen? Loyalty in the Age of the Deal - Part Two.
About the author: Hunter Madsen, Ph.D. is Chief Marketing Officer at ChoozOn - [email protected].