If you offer deals on Groupon, Living Social or other daily deal websites, beware. Detailed new research shows that for scores of local merchants, a hidden side effect is an increase in bad online reviews that can damage your reputation. That’s why it’s a good reason to actively monitor and manage your online reputation.
Researchers at Harvard and Boston University analyzed thousands of deals offered in 20 cities on Groupon and Living Social, as well as some 56,000 Yelp reviews over a six-month period in 2011. The researchers used sophisticated data analysis techniques to track the impact of such deals on the social media and online reputations of the merchants who offered them. The results were eye-opening, although perhaps not really surprising.
In the month following a Groupon offer, the number of Yelp reviews that merchants received skyrocketed an average of 84%. But the problem was this: A bigger chunk of the reviews tended to be bad, resulting in an average Yelp ratings drop of 10% to 12%. According to the report, “An average drop of 12% suggests a significant number of merchants may lose a half-star (of Yelp rating)” in the months following their offer. Some segments fared worse, with an average ratings drop of nearly 20%.
What’s going on? While the bottom line implications of taking a hit to your online reputation aren’t clear, the lower ratings likely occur for two reasons:
- The types of customers who seek out and use daily deal coupons tend to be more critical than others.
- The “fit” between these new customers and your business is weaker and more tenuous than with existing customers.
In short, local business fears about promoting daily deals are coming true. When a deal results in a rush of new customers, some businesses aren’t able to maintain their quality or service levels. The reviews reflect customers’ disappointments. Also, many customers attracted by the deal are only interested in getting something for nothing, with little or no interest in coming back.
As it turns out, there are more risks to offering deals on Groupon and Living Social than simply losing money on the deal. Your long-term business reputation can suffer as well. If you are planning a daily deal offer, here are some tips on making it a success:
- Consider offering a daily deal with a high face value (say, $50 or more) and a shallow discount (25% off face value, at most!), a short redemption period (90 days or less), and a limit on the number of total deals.
- The health care, professional services and special events industries have been the most successful at using daily deals; more than 70% of them made money on the promotions. However, two of the largest industries – restaurants/bars and salons/spas – often don’t do as well.
- Most important, don’t cut your other advertising and marketing spending to do daily deals. You’re not really building your brand when you discount your products and services. Only about 20% of customers using daily deals return to businesses to buy at full price, but customers acquired through other programs typically have much higher rates of full-price repurchases.