Do Social Deal Sites Really Work?
Do Social Deal Sites Really Work?
via HBR Blog Network
Editor’s Note: This fictionalized case study will appear in a forthcoming issue of Harvard Business Review, along with commentary from experts and readers. If you’d like your comment to be considered for publication, please be sure to include your full name, company or university affiliation, and email address.
The sales reps from DailyDilly had just finished their rollicking video presentation, and the laughter in the meeting room was starting to subside. Ruth Davison, the marketing director of Flanagan Theme Parks, was still smiling when she finally spoke. “I’m thoroughly impressed,” she said. “This would give us the marketing capabilities we’ve always wanted.”
Will Eastman, Flanagan’s operations director, was beaming. He had suggested doing the promotion with DailyDilly, a fast-growing Australian social-couponing company similar to Groupon or LivingSocial. “Then I think we’re ready to make a decision,” he said.
Everyone looked at Allie James, a consultant decades younger than Will and Ruth. Allie had been working with Flanagan for just over a month. She knew she had to kill the DailyDilly initiative but was reluctant to do it with the reps present. “Let’s discuss this off-line,” she said.
Will slapped the table. “Come on,” he demanded. “We’re here now.” The DailyDilly reps became wide-eyed.
Allie took a deep breath. If Will was going to push her, she’d be blunt. “No, then,” Allie said. “It’s not on.”
Will simply turned on his heel and walked out of the room. The reps started to review their presentation, but Allie stopped them with a wave of her hand. Ruth, no longer smiling, told them all she was sorry and stood up to escort everyone out.
Allie knew she had just made some enemies.
Half an hour later, Ruth stopped her in the corridor. “So you’re still not convinced?”
“Roddy asked me to weigh in on DailyDilly for a reason,” Allie said. Roddy Brennan, Flanagan’s managing director, had hired her from Gold Coast Partners, arguably Australia’s top management-consulting firm, with a mandate to improve the customer experience at the company’s six theme parks in Australia and New Zealand.
Ruth glared, and Allie had to summon all of her strength to muster a defense. She began: “I know everyone’s getting caught up in the group-buying mania. DailyDilly sounds fun, but a promotion like that would hurt the customer experience at the parks and damage your company in the long run.”
“Are you hungry?” Ruth suddenly interrupted.
Allie was startled. “Why?”
“I am. Let’s get lunch.”
“I brought a sandwich —” Allie said.
“Never mind your sandwich,” Ruth said. “It’s almost one. I’ll treat.”
Ruth’s was a forceful personality, and Allie soon found herself in the car park. “Buckle in,” Ruth said. Allie felt a little as though she were strapping into that zero-gravity ride at Mermaid Landing. What was it called? Ah, yes — the Great White Shark.
She and Roddy had ridden the Great White Shark together a few weeks back, when he was showing her around Mermaid Landing, the company’s flagship park. He had screamed and laughed the whole time, and that tickled Allie. Roddy obviously had the heart of a kid and a real love for his product.
But Flanagan was struggling. The lines were shorter than those at competing parks. The problem wasn’t the rides and attractions — they were state-of-the-art. In Allie’s opinion, customers were being turned off by careless service, crowded conditions at the eateries, poorly managed traffic flow into and out of the parks, and awkward scheduling of shows. Roddy had brought her in to fix all that. “I want customers to leave here raving about it — raving,” he had said.
Allie knew she could make Flanagan better. She had already helped an international hotel chain turn around its service reputation and improve guest satisfaction — she was becoming her firm’s go-to person for that kind of thing. Allie was painstakingly attentive to detail and preternaturally decisive, which is exactly what Roddy wanted. “Rule with an iron fist,” he’d told her.
Ruth pulled onto the highway. “I noticed you weren’t laughing during the video this morning,” she said. “Didn’t you think that senior-citizen group on our zip line was funny?”
“The video glossed over the pitfalls of daily deals,” Allie replied, knowing she sounded humorless. “There are ample case studies showing that people who buy from sites like DailyDilly are the worst kind of customers: ones with no loyalty. They’re like a flash mob of coupon clippers. They overburden merchants, create shortages, annoy the staff, and erode the experience for other customers.” She paused. “Where are we going, by the way?”
Just then Ruth exited at the sign for Coral Wonderland, another Flanagan park. She pulled up to a service entrance, showed her ID, and parked next to a high wall that separated this area from the one that customers see. “Did you notice the river in this park on your tour?” she asked, lowering her window. Allie nodded. “Well, there’s a little canal down there,” she said, pointing to a glimmer of water under a mass of pipes and machinery. “That’s where the river starts. It runs through the whole park.”
“I remember ducks,” Allie said vaguely.
“The ducks love it,” Ruth said. “So do the mosquitoes. That’s because it doesn’t flow — it’s blocked by all of this.” She motioned to the machinery. “I’m told this may be the biggest plumbing mess in eastern Australia. The circulation system wasn’t built properly, and for years we’ve been patching it up because we don’t have the cash flow to replace it. We can’t budget for this kind of thing because revenues are so unpredictable.” Satisfied that she’d made her point, she restarted the car.
But Allie didn’t get it. “And?”
“I’m talking about DailyDilly. Think about it. If we work with them, our cash flow gets easier to predict — because people pay when the deal is posted, not when they come through our gates, if they ever do. That’s why Will was upset when you said no. He needs to make operations more predictable. I suppose you could argue that cash flows don’t affect customer experience, but mozzies breeding in our plumbing cesspool certainly do.”
One of those mozzies had apparently got into the car. Allie crushed it efficiently between her fingers. “But how many deals could you do in a year?” she asked. “Three? That’s hardly steady cash.”
Back on the road, Ruth pulled up to a fast-food restaurant.
“Here?” Allie gasped.
“Don’t worry, we’re not eating at this place. I just want to show you something.” Inside, they observed customers getting their orders. “Notice the tray mats?” Ruth said. They all carried an ad for Flanagan parks — a cartoon image of the Great White Shark, along with a coupon offer.
“This is a typical comarketing effort for us, and it’s typically bland,” Ruth said. “With comarketing we don’t control our message. We’re limited by our partners’ requirements. We can’t use sophisticated humor or striking images to differentiate ourselves. We spend many thousands of dollars on this junk, and the return is pathetic.” She looked around in disgust. “We’re done here,” she said.
“And DailyDilly would solve the problem?” Allie asked back in the car.
“We would have more control over pricing,” Ruth said. “Right now we’re giving away so many coupons that hardly anyone pays full price to get into a Flanagan theme park.”
“I’d say that’s what’s wrong with DailyDilly, not what’s right about it,” Allie replied. “You saw the discounts the reps mentioned this morning: 50%. It creates the same pricing problem as the coupons. We’d be encouraging customers to wait for the next dirt-cheap deal. And no customer values an experience that’s 50% off!”
Ruth shook her head. “True, we would take a hit for certain customers at certain times. And, yes, we’d get only 25% of the ticket price because DailyDilly keeps half of the promotional price. But overall we’d be better able to maintain our list price, given that we’d eliminate all those other coupons. And we’d be targeting our kind of customer: people hungry for a thrill, which is what we sell. Traditional marketing inevitably — invariably — means throwing money at people who aren’t really potential customers. With DailyDilly we’d be hitting exactly the right audience — and that’s worth a lot.”
She turned into another parking area. “Here we are,” she said.
“It’s a hoot,” Ruth said.
A Long Queue
Everything in the restaurant appeared to be in constant motion, like sea grass in the waves. That’s because each table was suspended from the ceiling, and every seat was a swing. Even more surprising was how many of the seats were occupied.
“I’m getting the point that this lunch excursion is a theme-park ride devoted to daily deals,” Allie said. “So what’s the angle here?”
Ruth grinned. “You’re right. The ride is over. This is our final destination. The DailyDilly reps told me that this restaurant just ran a very successful group buy, offering 50%-off lunch coupons. They sold thousands of them. That’s what you’re looking at. Can you think of any other type of marketing initiative that could target so many people predisposed to a quirky experience like this? Forget it. There isn’t one.”
Allie looked around at the dozens of people gently swinging as they talked and ate. The clink of dishes and the buzz of conversation mingled with the creaking of ropes. But Allie knew that if these were DailyDilly customers, they weren’t the good ones every merchant wanted. She’d heard enough from her hotel clients about how badly deal seekers behaved. They were rude, left holes in walls, and, most important, never came back to pay full price.
“Let’s talk to them,” Allie said.
“Who, the owners?”
“No, the customers.” Picking a table of four women in their twenties, she asked if they’d bought into the DailyDilly deal, and indeed they had. “So how much are you going to spend beyond the coupon?”
They giggled. “As little as possible,” one said.
“Would you come back and pay full price?” Allie asked.
“Doubt it,” another answered. “Who wants to get seasick while you eat?” More laughter.
Allie turned to Ruth. “Ask any table. I’m sure you’ll get the same answers. Now imagine these people at Mermaid Landing or one of the other parks. Would they pay for photos or buy stuffed animals? Never. They probably wouldn’t even buy food. They’d get sandwiches through some other DailyDilly deal, smuggle them in, and eat lunch on a bench.”
Allie pointed toward the door, where another group of young women had just lined up at the hostess stand — more DailyDilly people, no doubt. “Do you see? They’re queuing up for tables, just as they’d queue up for the Great White, making the experience that much worse for the good customers, the ones who pay.”
“I just see a lot of eager customers,” Ruth replied, “all acquired very efficiently at a relatively low cost. If short queues are Flanagan’s goal, we’re already a screaming success. I want to seelonger queues. Not so long that people get fed up, but long enough to make them feel they’re waiting for something special — and to make Flanagan money.
“And if you want to interview a deal seeker, talk to me,” Ruth continued. “I use DailyDilly for all kinds of things, and I do buy more than the coupon value, and I do go back to places I like. I’m one of those ‘good’ customers you’re talking about.” She paused and looked around again. “This could really help Flanagan,” Ruth said. “That’s why I’m asking you to reconsider your decision.”
Question: Should Allie approve the DailyDilly promotion?
SOURCE: HBR Blogs