Some time ago my wife Nicole posted a small series of blogs about the topic of Loyalty on ciber.com. In these readable blogs she identified and summarised three main strategies of acquiring loyal customers, which are
- Every day low price
- Classic loyalty programs that base upon cash-back options or that are points based
- Hybrid models
To gain and retain loyal customers it is necessary for Retailers (or brands, or …) to get into a mutual engagement with the customers. In order to achieve this it needs something like a WOW!-factor. An important way to get this factor for Retailers is the usage of social media (or social CRM when being more advanced).
Every day low price of course means plain ole price competition. No WOW!-factor whatsoever involved here. On top of that there can be only one competitor that actually has the lowest price. All the others go in from second place onwards. Given that, competition only on price is the surefire way to a Retailer’s death if the Retailer is not the one with the lowest price.
Price competition kills margin, service levels, shopping experience, ability to gather and analyze more data on customers, as it needs an investment, which needs to be paid out of lowering margins. Every day low price works well for highly commoditized products and services, else it is dangerous. Customers will not see the real price of a good or service anymore but ask/search for a discount. It is extremely difficult to change this behavior once it shows up – and we consumers are already educated about the fact that the same product can come cheaper, so why pay the full price?
How do Groupon or other, less known similar providers (like steals4all.com, an aggregator on Groupon, or 1-day.co.nz, to name but a few) fit into this – at various levels?
Well, Groupon basically adds some WOW!-factor to price competition by adding a community feeling and some lottery atmosphere. But essentially Groupon is about low prices, which widely opens the road towards price competition, with all its risks.
Having said that, Groupon has hit a nerve, as rising user numbers and soaring valuation show. There is a demand. Still it needs to be used wisely and as a part of a wider social strategy, or preferably by Retailers who follow low price strategies – with the caveat that Groupon, being a business, takes an additional part of the remaining margin for itself, of course.
Leading Retailers who want to take real advantage of social environments (not social media, not social CRM) will get further. These Retailers will provide added value to their customers, be it via a consistent user experience in the different channels, ease of use, solutions to challenges that I, as a customer always have, co-creating it with their customers and so on.
These Retailers will also successfully integrate their social media endeavours with their traditional CRM strategy and implementation, in order to learn and be able to act on the learning, to their customers benefits, which is the ultimate way to the Retailers’ nirvana.
Mark Tamis , I and others have blogged about this before, so there is no real need to repeat possible value adding scenarios, but probably much scope to look into taking more advantage of value adding and possibly co-creation (I need to thank @grahamhill for a good discussion and links to this topic, which I still need to digest). Groupon and its likes are by far not the end of the road – merely only the beginning.