Do Deep Discounts Attract Loyal Customers?
About two years ago the Groupon phase was just booming. After much debate I decided to take the plunge. We set up a Groupon deal with enough restrictions in place to satisfy my fears of becoming a Groupon Slave. We sold just over 100 Groupons, and that afternoon people started coming in. At first it was great to see new faces in the door, people excited about trying out our service, the buzz of a busier gym was palpable and we were excited about our opportunity to showcase the awesomeness we had brewing in our box.
Imagine for a moment that you the owner of a BMW dealership (insert any other premium car or product retailer if you wish). As a provider of a premium product you don’t compete on price, in fact price is one of the things you keep high to ensure you can keep your quality high. Now imagine for a moment, your BMW dealership is having a hard time selling cars. Racking your brain for what the problem is you decide that you’ve found the perfect solution! You’re going to offer short term leases, for cheaper than a regular lease costs. Brilliant! For only $99 dollars you can drive a new BMW M3 for 21 days. Take it home, show it to your friends, go on a few dates in style and then bring it back when you’re done. A savings of 79%.
The thought process behind this is that attracting more people to try the product will make more people interested in buying the product. Now, how many of these people who bargain hunted a deal do you think will be interested in paying full price for the BMW M3 after their 21 days of glory? If not, is it the fault of the manufacturer or the dealership? Did we give them a lemon car? Perhaps the customer service wasn’t great (especially considering we had hundreds of people lined up to pick up their car all on the same day. Do you get where I’m going with this? In this situation the problem isn’t the product/service. The problem is the customers!
These deal-finders are no more likely to become loyal customers than a random person walking by your building. Why you ask? Because they don’t value your product. Simple as that. Can many more people afford to lease or purchase an $80,000 vehicle than currently do? Sure they can. The difference is they don’t want to. Their values are not aligned with yours. They might value going on two nice vacations a year with their family. They might want to own two or three vehicles. They might even want to own a Smart Car instead because it’s ‘good for the environment’, or plunge money into Retirement Savings Plans.
Your most loyal customer has values that are aligned with yours. They see the value in what you offer, and it fits into their lives because they have made that decision, often without you. You’re filling a need, or solving a problem. More often than not you’re not winning the game simply because you offer something for cheaper than the competition.
Seth Godin often talks about the race to the bottom. As he says “the biggest problem with the race to the bottom is that you might actually win”. The customer you want isn’t the one that wants to buy the cheapest car, or the cheapest tv. The one that drives around town wasting $2 of gas to save 20 cents filling up their gas tank. You want the customer that drives across town spend an extra $2 in gas to come see you instead of your cheaper competitor!
Discount focused people are rarely loyal, because they value low prices. Instead, spend your time improving your customer experience. Treat your customers like family. Give them more, focus on improving your service and refining your product until you’re at a point where you can pick and choose your customers to make sure they’re the right fit… for both of you! When you and your customer are on the same page, that’s when you can really make awesome things happen!
Do I regret running Groupon? Nope. It was an experience that taught me a lot, and we gained some awesome members from it. Would I ever do it again? Hell no. There are significantly better options to attract customers, the difference is the better options take more work than a simple click.