15 Aug How Groupon etc changed consumer spending
I will no doubt not be the first to bring this up, nor will I be the last, but I think it is high time my opinion was added to the others that have gone before and will go after me.
I know the title of this post mentions Groupon specifically, but this actually applies to all ‘daily deal sites’ and is not a ‘slating of’ these sites, nor is it a downright slanderous rant at them or any attempt to bring them in to disrepute; it is just my observations and opinion….disclaimer over!
Okay, so almost everyone in the world is now aware of the daily deals phenomenon and many business are aware of the impact this has. Some businesses love it, some loathe it. I have seen stories of businesses that have gone bust courtesy of these daily deal sites and their clamouring for profits; on the flip side the daily deals sites would say the businesses affected should have been more scrupulous over the contract they signed and the conditions of sale that are imposed. I empathise with the business owners, but also understand the daily deals sites stance on these things, after all if you didn’t read the contract properly, why sign it?
Nowadays attitudes of consumers have changed and there have been many things that contribute to this. Within hospitality, there is practically no hotel or restaurant that has not felt the pinch over recent years, and our customers are the same. Shopping has changed…. Massively!
Where people used to shop for the best quality (in fact, I still do!) and be willing to pay the higher price tag, the majority consensus amongst consumers seems to be to ‘get as much as you can for as little as you can’. Take for example the explosion in daily deals sites, and when this occurred. Sites such as Groupon, Living Social, Wowcher etc all popped up in the past few years and capitalised on a bad situation – they came with a promise to consumers of getting things for around half price, and promised the businesses a massive influx of customers albeit at a massively reduced cost; it was a win win situation for everyone (at least it seemed). Needless to say, that for many businesses, the glossy sales speak promises and dreams of riches in frugal times quickly faded.
Whilst these sites boomed, consumers began to change, and change quickly. No longer did anyone care what the ‘market value’ of a product was, nor did anyone care about how high quality something was. Instead of people asking the question ‘how good is this product and will it last me forever and suit my needs?’ they began asking ‘where can I get this for the cheapest price?’
Consumer habits were changing, and seem to have (at least for now), changed for good. Take for example my job. I work in a hotel and we indeed fell foul to the promise of riches and instant revenue, but our story was very different to that promised! Once the al went live, we were overwhelmed with bookings, and complaints!
Despite our best efforts and information, including restricted availability for certain dates, and notes on the deal to say that each booking was subject to availability, we ended up with complaint upon complaint because people could not book Saturday nights. Now let’s be fair, we sold hundreds of vouchers, with only limited availability at weekends due to events and pre-existing bookings, there were bound to be people who did not get dates they wanted. In 100% of those instances of complaint, not one person had contacted us to checks availability before buying the voucher, it was just assumed it would be available. Most of these containers went right to the top of the business, forcing us to move already booked, higher rate guests out of the hotel to another property, losing customer loyalty.
Following this, we found time and time again that people would arrive without their voucher, or would arrive on the wrong day (most commonly book an available day such as Wednesday, then turn up on the Saturday when we are full, despite clearly having confirmation for the Wednesday, and then complain saying it is our fault).
We also had to increase our staffing, often doubling the amount of staff we had in. Then getting payment for the redeemed vouchers was a travesty in itself. Whilst we redeemed vouchers, actually keeping track of the vouchers that had been paid to us was practically impossible. Payments never appeared within the 10 day payment window promised, and when vouchers went on sale, we allocated 500 and sold nearly 1000 because the site decided to keep sales open because it was doing well. We also were hit hard on commission… A total of a third of the selling rate. We sold each voucher for approx £70 for dinner, bed and breakfast for one night and actually only received less than £45 per voucher. A further loss of revenues was that because the site had oversold our voucher allocation, we ended up having to upgrade people to premier rooms free of charge, and yes, some were very lucky and ended up in our executive suites for the night, causing more complaints when they spoke to someone at dinner and said they had a suite when the other person only had a standard room but paid the same! More complaints were also abound regarding the restaurant; not because of the food, but because every single guest wanted to eat at 7:30 or 8pm which was not possible with the capacity of the restaurant.
The final result for the hotel was this; the hotel had accommodation revenue of less than £5 per room per night (anyone who deals with room revenues and average room rates will know that this is a laughable amount and extraordinarily, even stupidly, low for a hotel at full occupancy), we ended up with no more repeat business than usual, we had increased costs with reduced revenue for each department, incidental spend did not increase. Needless to say, we will never run anything like that again.
Now many would level this at the daily deal sites, but I think that is unfair. We are in a capitalist society and they are capitalising on a situation. The businesses that agree to these deals need to fully weigh up the cost to themselves and how it will affect trade first, instead of levelling all the problems at the deals site. The main impact here is what has happened to consumerism.
With people tightening their belts, the deals sites have had a boom. I have even been tempted a few times, but have stopped at actually clicking ‘buy’ as from my perspective, that business values me more if I pay full price, but that’s just me! The change in consumer attitudes has been huge.
Once upon a time, people used to complain by providing constructive feedback. People would detail how. You can improve, what they liked and what they didn’t like. Nowadays, I see much more of the ‘I want compensation’ or ‘I want this for free’ when people complain to me. Our product has not changed, our service has improved if anything and our product itself has gone a steady improvement over the past few months, but still the compensation demands continue.
I am all for consumer rights, and getting redress when it is necessary, but am against people who complain just to get as much as they can, however this type of consumer is becoming much more common.
Now as to why daily deal sites perpetuate this type of consumer behaviour. Now think about this logically, consumers are now getting twice the product at half the price with these types of sites. Instead of paying full price, people are encouraged by all the deals and cut price savings, to shop around a bit more. What happens as a result is that people try to get all they can for as cheap as they can (I have no problem with this). Following on from this is a lower price standardisation in comparison to product.
Let me explain. Think about fuel prices. When I started driving, fuel was around 55p a litre in the UK. I remember the UK fuel blockages well, but these were started because prices were increasing and people were annoyed at how expensive fuel was becoming. Just over 12 years on, and fuel is around £1.30 a litre, over double the price when people had blockades about the price rise, but no more blockades like that have happened and people accept the situation on the whole that fuel is more expensive. Why? Because people have undergone pricing standardisation. This is where people ‘get used to’ a certain price or pricing strategy over time. The same happens in reverse. Look at deals in the supermarket. If something is on offer at £1 for 3 months and you buy it every week, when the price goes up to £1.50 you would be more reluctant to buy it. This is because you of pricing standardisation and value assessment. You expect the product to be £1 so value the maximum cost of that product as £1, to you it is worth paying £1 for and nothing more.
Now let’s look how this applies to complaints. Say you bought a pack of biscuits each week for £1, and each week you had a slightly imperfect biscuit. This would standardise you that at £1 you have a near perfect pack of biscuits. Now say the price goes up to £1.50 and you find an imperfect biscuit. You may feel slightly aggrieved because the price has increased, meaning you expect the quality to increase also; finding your imperfect one biscuit is a bit of annoyance, but acceptable to you. Now imagine finding two imperfect biscuits. This then could cause a complaint because your price standardisation says the biscuits are worth £1, you have been charged £1.50 so expect improvement. The fact that the quality has reduced, and the price increased, dictates you no longer receive a standard you expect. Your standardisation for both quality and price has been challenged in a negative manner, leading to heightened disappointment and resentment. Customer loyalty therefore decreases.
By using third party deals sites and selling at 50% of your usual cost, you are setting a pricing and quality standard to the first time consumer. Say you charge £100 for a spa treatment and sell it at £50 on a deals site, your consumers will then be standardised that the treatment is worth £50, not the £100 you normally would charge.
It is tricky to understand envy nuance of consumer behaviour, but be aware that as sites appear that offer ‘the next great deal’, so your price point may be affected for a long time. Customer loyalty has decreased, after all if someone can get cheaper elsewhere, they generally will, and if they can get something for free, they will.
[box style=”light-blue info shadow”]Please see the comments below for a response from someone who works for a daily deals site (thanks James) This is not in any way a dig at, nor a lambasting comment on daily deal sites. If used correctly by businesses they can be fantastic for trade. This article is my comment on how these sites have contributed to a change in consumer spending, and not a derogatory article about deal sites. [/box] [php function=1][/php] [author_box avatar=”yes” style=”yellow rounded comment” ][/author_box]