Repeat Merchants, NOT all good news

The following charts are making the rounds on various web sites. Provided by Yipit and making the rounds on Business Insider and other sites. Although we rarely discuss Groupon, we will make an exception here to make a point. The charts show that an increasing amount of existing merchants are choosing to run more deals with Groupon. Meaning more repeat merchants for Groupon. (In fact, this is the case across the board for most all deal sites, not just Groupon). Most articles, blog posts and sites who have shown this chart use the data provided as to how Groupon is proving that merchants really do find that Daily Deals are an effective marketing tool and thus choose to repeat their campaigns.

Here are the charts in question:

 

 

 

So yes, more merchants are choosing to repeat their daily deal campaigns. And yes, repeat merchants perform better than new merchants. However, most commentary on these charts seem to be looking at them through rose colored glasses. Here are some observations based on the same charts:

An Erosion of new Merchants:
Very few have commented on the reality that these charts clearly show an erosion of new merchants choosing to use Groupon as a viable marketing vehicle. In fact, most of the new merchants using Groupon are within the “non local” categories of Travel and Product deals. To me, that is a troubling stat. Perhaps merchants are tired of being bombarded and contacted by 20 deal sites in any given week. Perhaps merchants have not found a way of profiting from daily deal promotions. Perhaps deal sites need to do a better job showing merchants how to profit and benefit from this marketing vehicle. It’s all good and all to have more and more merchants want to run repeat offers, but not filling the inventory bucket with new customers will lead to consumers becoming bored of the the usual repeat merchants always being promoted on every deal site every other week. If the trend shown in the charts above continue, then this will, unfortunately, be the case.

Sale commission misalignment
Having worked with many Deal providers across the country, there is another reason why there are more repeat merchants using Daily Deal promotions. This reason is based on what Deal sites, or rather their sales reps are NOT doing: they are simply not prospecting for new merchants as much. Why? simple, because it is FAR easier to convince an existing merchant to run another campaign than it is a new merchant to run their first. Most sales reps for deal companies will do as other sales reps do…they will do as they are compensated. Therefore, they will try and close the existing merchant contract first because it is far easier to do so, brings in a more guaranteed commission and makes the best use of their prospecting efforts. Having to convince a new merchant are the benefits of running their first deal campaign takes too much time for most sales reps. This eventually leads to less new inventory for Deal sites to promote and the data is falsely concluded as showing that more and more deals are from repeat merchants when in actuality it simply shows that less and less merchants are signing up at all.

Recommendation: that Daily Deal companies change commission structures for sales reps so as to compensate them more for new merchant contracts, or rather compensate them less for repeat contracts. Signing up more new merchants is the only way to continue a consistent stream of revenue going forward.

Recommendation: the industry as a whole needs to do a better job promoting itself and the benefits to merchants. Out reach to the merchant community, PR to the merchant community needs to improve and the whole industry needs to work in tandem to get the right message across. We are working on a project to help accomplish this along side Deal providers across the country and will be writing about it more in July.

 

I also believe that Daily Deal companies have a responsibility in helping those local retailers that are less known, those that cannot afford traditional advertising, those that truly need marketing and visibility. Deal companies are in the best position to help drive customer acquisition for these local merchants. Now, these lesser known local merchants may not generate as much revenues for the daily deal company, but there are more of them. It would certainly be satisfying knowing that your marketing company (the daily deal site) is promoting LOCAL COMMERCE. This, by the way, was the original philosophy of Daily Deal and Group buying web sites….helping local merchants reach local customers. Deal providers are getting further and further away from this. (more on this in our next few posts)

 

1 Comment
  1. Restructuring the model,innovation so to speak is what’s been lacking for Groupon to attract new merchants.