Are daily deals good or bad for customer service?

Are you thinking of using a daily deal service, like Groupon or LivingSocial, to attract new customers to your business? You may want to think twice if you thrive on repeat customers and use service to different your business from the competition.

In December 2010, Patrick Maguire posted an excellent story on his Server not Servant blog about a restaurant that was overwhelmed by an unexpected walk-in party of 47 guests. Even worse, they were all wielding Groupons good for $35 worth of food and drink for $15 and expected 47 separate checks so each person could receive the discount. (Read about “The Perfect Restaurant Storm” here.) The post naturally generated a lot of conversation about the customer service challenges presented by this situation.

This may be an extreme example, but there is some evidence that suggests daily deal customers may be pickier about customer service. A September 2011 study published by researchers at Boston University and Harvard discovered that when Yelp reviewers mention a daily deal they rate the business an average of 10% lower than other reviewers (read the study here). A negative review can have a double impact on a business since it means the customer likely won’t return and lower average ratings can also warn off other potential customers.

Repeat customers are essential to making a daily deal promotion work. Businesses typically split the revenue with a daily deal provider, so a restaurant offering $35 worth of food and drink for $15 might receive only $7.50. If all goes well, customers have a great experience and return again paying full price. If not, then perhaps the customer posts a negative review on Yelp and visits the next restaurant offering a terrific bargain.

The two major daily deal sites counter with some impressive stats of their own. According to Groupon’s website, 90% of Groupon customers spend more than the face value of the promotion. LivingSocial’s website cites a study which found that 85% of customers are satisfied and plan to return to the business.

An article in the April 2012 edition of Fast Company provided a good overview of some of the emerging trends in daily deals, including three examples of promotions that worked with varying degrees of success (see “Are Daily Deals Done?"). The most successful example had a clear strategy for not only bringing in new customers, but selling them on other products and services that would make the offer pay off.

Perhaps that’s the best conclusion for businesses thinking about going the daily deal route. Be careful in how you construct the promotion and approach it with the bigger picture in mind. If not, you might just find yourself with a room full of impatient customers who can’t wait to write a scathing online review about your business.