Category Archives: Marketing Metrics

Marketing performance measurement and metrics.

Social Couponing Effect on Brands

Social coupon offers are all over the Internet.  It seems like you can’t visit a site these days without seeing ads by Groupon, LivingSocial or yet another site offering discounted offers on local services.  Some may remember the early aggregate buying pioneers like Mercata (backed by Paul Allen, formerly of Microsoft), which started in 2000 and collapsed a year later.  Fast forward to 2011.  Thanks to social media sites like Facebook and Twitter, aggregate buying has had a new avatar.

Using social media to spread the word, It’s a lot easier now to build the critical mass needed for the tipping point.  Groupon reported revenues of $645 million for Q1 this year (which could potentially make them a $2 billion plus company this year, although they are losing money heavily).  This rapid growth of social couponing leads to an interesting question.   For brands that use social couponing, what are the short-term and long-term effects?

Short-term benefits for the business:

  • Topline Growth.  There will be a spike in sales.  If the deal is capped at a certain number and all of the coupons are redeemed with no extra purchases occurring, fairly accurate sales projection is possible.
  • Smoothing Demand and Supply.  In the case of businesses with inventory to liquidate or perishable inventory (such as restaurants, where a vacant table is lost revenue), couponing has the potential to ensure optimal capacity usage, although the sales generated via coupons often happens at a price below cost or at the marginal cost (where price of a product equal the additional cost of producing an extra unit).
  • Inducing Trial.  For relatively new businesses, social couponing can be used to lower the risk of a product trial.  Groupon is known to prefer established/reputated brands, but there are plenty of others who are only too eager to sign up any business that wants to offer coupons.
  • Weathering the Storm.  When the economy is sluggish, this may seem like a good way to keep the business going.  It may keep employees in services businesses happy (because of tips they get) and create a sense of security (it appears like the company is weathering the storm) even when the company is losing money on every sale.

Such short-term benefits seem enticing, but one has to consider the long-term impact on bottom line and on the brand.

Long-term pains for business:

  • Lower Margins. Consumers get very low prices on a whole range of services and some products.  While most are local businesses, from time-to-time national brands participate.  As consumers get used to the low prices, will they ever be willing to pay full price?  Consumers’ reservation price (or the highest price willing to pay) is likely to diminish over time.  If fact, Groupon’s ad campaign asks, “Why are you still paying full price?” Increased use of social coupons will likely lead to downward pressure on prices.  In a study done at Rice University, 32% of companies using Groupon reported that the deal was unprofitable and 40% companies said they would not use such deals again.  Erosion of margins will make it difficult to innovate and create superior customer experiences.
  • Your Target Market.  You will likely draw clients that were not part of your original target market.  Those who were not willing to pay the price for that spa or restaurant or resort experience, now have access.  Your control over customer selection is greatly diminished.  You would hope that they will turn into profitable, good customers.
  • Brand Loyalty.  Will proliferation of social couponing diminish brand loyalty?  There are no definitive answers yet.  If customers who buy at reduced prices don’t buy other items at full prices or come back to buy the item at full price (more than once) and/or encourage others to buy at full price, the net effect might be diminished brand loyalty.  A few businesses I have talked to report that their best and most loyal customers, who previously paid full price, are showing up with coupons.  Such customers in the past would have paid a full price, but not any more.
  • Focus on Price and Not on Brand.  Widespread use of coupons will shift the focus to price and not on brand attributes that provide differentiation or a unique experience.  Brand marketers want the consumer to focus on brand benefits and appreciate the points of difference.  But if price is going to drive consumer decisions, the brand becomes less relevant.  If the brand is diminished, the business loses a strategic asset and a competitive weapon.

When and How to Use Social Coupons?

“Stickiness” or Conversion Potential. The hope is that those who buy at heavily discounted prices will later repeat purchase at a full price (hopefully more than once).  For instance, a fitness club membership may have good potential being renewed at full price.  The local YMCA fitness center offered a discounted 3-month membership.  If these new patrons get hooked and see the benefits of going to the gym, there is a good chance of a high renewal rate at full price.  On the other hand, a luxury spa or a beach resort or even an upscale restaurant experience do not have the same conversion potential.  These are not very essential or regular experiences.  An upscale restaurant I know sold nearly 1000 coupons and is now learning hard lesson.  The conversion potential of the category is important.

Set Limits and Be Strategic. It may make sense during a slow period or specifically for slow-moving items or entry level services etc.  Limit the number of coupons and set expiry date (if law permits). Frequent use of coupons will erode profitability and long-term brand value.   Use online coupons strategically.  Think about whether offering deep discounts is consistent with the brand positioning.

Measure. Measure and monitor the impact.  Look at new customer growth, mix of couponing using customers (new vs. existing customers), conversion of new customers to full price paying customers, margins, and impact on brand equity.

Focus on  Customer Experience. Providing a great customer experience is not optional because you offer a low price.  It is all the more important now to focus on delivering quality and a good customer experience, because that will increase the chance of the customer coming back and paying a full price.

Faulty Feedback Forms

Recently I conducted a training seminar for managers from several organizations on “Managing Customer Satisfaction and Loyalty.” The participants came from SMEs, large businesses and the non-profit sector. I asked the 30 participants if their organization measured customer satisfaction on a regular basis – two-thirds did not! How does one run a successful company without knowing if we are indeed delivering value to our customers? Most of those who did not measure CS were SMEs, which was not surprising.

After the session was over, I started thinking about how well companies measure customer satisfaction. It is one thing to say we do it, and yet another to actually do it. I collected several customer satisfaction/feedback forms. My unscientific sample included: Subway (fast food/quick service), Pizza Delight and Boston Pizza (restaurant), Delta Hotels (hospitality), Dell Canada (computers & technology), Sears Canada, Leon’s and Kent (Retail). For Delta and Dell, I got their online feedback forms.

My analysis led me to conclude that most forms are poorly designed. They either do not ask the right questions or do not measure using the right scales, which would diminish the quality of data obtained. Let me elaborate on this conclusion. Specific problems I identified included the following.

  1. Response Scaling or Categories. Leon’s uses a YES/NO (dichotomous) scale. Often response to questions like “where you satisfied with the service at the front desk” is not black or white. It is useful to know the degree to which customers like or dislike a particular aspect of the service. Subway uses a 3-point scale (excellent, satisfactory and unsatisfactory) and Boston Pizza uses a 4-point scale (excellent, good, fair, needs improvement), which is interesting because I would think that any response that is less than “excellent” is in need of improvement. The response scales convey the impression that for Boston Pizza “fair” is good enough. Kent, a home improvement chain which competes with Home Depot, has 10-point scales, which in my view is better than all of the previous examples. A scale with more response categories provides more variance, and will help in identifying consumers who have varying levels of satisfaction. I consider 2, 3 and 4 point scales to be clearly inadequate.
  2. Scale versus Item. Customer satisfaction is a construct that needs multiple measures. Anyone trained well enough in survey research will tell you that using multiple items leads to more reliable measurement.
  3. Measures. There is a great deal of variance in the actual measures found in these surveys. Some like Dell Canada, Kent and Sears (in the latest version I saw) don’t have an overall satisfaction question or an intent to revisit question. Dell Canada, instead, chooses to focus on four specific aspects of online user experience (interesting asks only the “overall satisfaction” question and does not probe on individual drivers of satisfaction). Some firms like Leon’s include loyalty measures and others like Boston Pizza have a “willingness to recommend” question. It just appears that not a lot of thought has gone into the creation of these comment cards. Most of the feedback surveys or cards focus on ratings of individual performance attributes (like knowledge of staff, friendliness of staff, appearance of the place etc.) and don’t have measures which can be used to a create satisfaction/loyalty index. The scales are also not suitable for predictive modeling. I would like to see surveys, even short feedback cards, measure attribute-level satisfaction as well as overall satisfaction and loyalty.
  4. Wording. Some of the customer feedback cards are poorly worded. There are two types of errors:
    • Two-in-one Questions. Delta’s questionnaire consists of several two-in-one questions like “comfort and layout.” Comfort of a room may be determined by several factors with layout being one of them. Even if layout was perfect, overall comfort could have been low due to several other factors.
    • Use of Jargons. Dell uses the term “usability” in their Canadian site. According to Wikipedia:
  5. Usability is a term used to denote the ease with which people can employ a particular tool or other human-made object in order to achieve a particular goal. Usability can also refer to the methods of measuring usability and the study of the principles behind an object’s perceived efficiency or elegance.

    Wouldn’t the term “user-friendliness of the site” be easier for the average consumer to understand than the term “usability”? Opt for language that is easy to understand.

  6. Data Collection. The vast majority of these are self-reporting type of instruments. Leon’s has a shorter version of their form that is implemented via phone (using IVR or interactive voice response survey). Delta Hotels offers both a paper form and an online form. Little thought is given to increasing the response rates for these surveys, which is typically very low. Leon’s again does a nice job offering a chance to win a $50 gift certificate and Kent has a similar offer. In other places, the comment cards are tucked away near the counter or some place and the onus is on the customer to request them. Among the firms with multiple locations, some like Boston Pizza don’t ask for the location of the restaurant. It would be a good idea to ask this question so that different locations can be compared on customer satisfaction. In my recent experience, Leon’s was the only place where I didn’t have to ask for it. They included it with my purchase receipt. Consumers are bombarded with surveys these days. Make it easy for customers to complete the survey and provide an incentive to respond. Without a good response rate month after month, it would not be possible to track key metrics.
  7. The Objective. These comment cards and surveys seem to measure different things. It is unclear how much thought has gone into what these surveys are supposed to accomplish. What analysis will be done with the data? What managerial insights will be generated by such analysis? Thinking about what analysis will be done and what managerial questions will be answered and what gaps will be identified makes it easier to identify the right questions and ask them using appropriate scales. If some really useful insights have to emerge from this exercise, then more thought has to go into the design and implementation of these feedback cards and systems.

In addition to methodology issues, it should be borne in mind that asking the customer for feedback provides the firm two great opportunities:

  • Make Customer Feel Important. By asking for opinion, you are letting your customers know that you care about them. If you can also show how you have used customer feedback in the past to improve your service, it adds to your credibility.
  • Reinforce Brand Identity and Brand Experience. The survey process should be treated as another critical touch point, where the customer comes in contact with the brand. I was surprised to see the varying quality of the comment cards. Sears was the worst. Sears used to have a fairly decent card with English on one side and French on the other side (in Canada), with the Sears logo at the bottom. A couple of weeks ago, I went to Sears and asked for the feedback form. After searching several messy drawers behind the counter, the clerk in the children’s clothing section gave me poorly photocopied form which did not even have the company name or logo! In terms of presentation, Pizza Delight and Kent were very good. Pizza Delight has a neatly folded 2″x4″ card which showed the logo and graphics in colour and they also attached a little ball-point pen to the comment card… a nice touch. Kent has a professional looking card with pre-paid mail and even a signed letter from the general manager, which suggests they take customer feedback seriously. Dell Canada’s online comment card did not have its logo (they may fix this soon), while its US counterpart did. When customers are asked for feedback, that’s a great opportunity to reinforce the brand identity. Clearly, some companies, even big ones, are not capitalizing on this opportunity.

The problem is everyone thinks they can design a survey. After all, what’s so difficult about asking a few questions? As evident from my limited sample, a lot of things can go wrong if the expertise, attention and resources required to do it well are not allocated. The worst thing is that a poorly presented survey or feedback card can present the brand in bad light.

In closing, while I don’t excuse SMEs that do not ask their customers for feedback, it is not surprising that many SMEs are not measuring customer satisfaction. But among the firms that do measure, even many larger firms are executing it poorly both from a methodological and branding standpoint. That’s a shame.

As always, I welcome your comments and feedback.

(This post originally appeared on November 5, 2007)