It’s one in a growing number of young businesses tackling the issue of customer loyalty and retention, a need some have said has become more prominent now that daily deals are a popular way for merchants to attract new customers.
“The daily deals site is geared around acquisition, but many small businesses are much more interested in engagement and retention of their customers,” said Peter Krasilovsky, an analyst with Chantilly-based research firm BIA/Kelsey. “They want to drive customers back to their store more often.”
The nation’s largest daily deal providers have ballooned into multimillion dollar businesses by using online coupons to entice people through the doors of restaurants, salons and other establishments where they might not have ventured otherwise.
But do they come back? That question is key for the merchants, some of whom lose money on the deals and hope to recoup the loss when new customers pay full price on return visits.
Critics assert it doesn’t always work out that way. Instead, they say, the steep discounts often appeal to one-time deal hunters and regulars who would presumably spend full price otherwise.
But Jake Maas, senior vice president of LivingSocial’s consumer business, called such assumptions “unfair and false.” He added: “All of our research, including that from external sources, indicates that there is a very high level of customer satisfaction and repeat business for most merchants who run offers with us.”
A survey of 931 consumers conducted by professors at Cornell and Rice universities found few differences between customers who use daily deals and those who don’t. Both said they were just as likely to return to a restaurant and pay full price.
However, the same study found that 44 percent of participants who use daily deals reported being frequent visitors, meaning they have presumably paid full price before.
Another upstart with offices in the District, called Womply, has devised a hybrid system that encourages customers to be loyal to a particular establishment by offering them a refund to their credit card after a certain number of visits.
“Giving these steep discounts upfront to a customer you really know nothing about has a high operational expense and is a distraction for staff,” said Womply co-founder Brandt Squires, who has previously worked with both LivingSocial and Venga. “We’re rewarding somebody after their visit.”
Venga shies away from a discounts-only model. Customers are awarded points with each visit that can result over time in perks of the restaurant’s choosing. That could be a T-shirt, complimentary dessert or priority reservations on holidays.
“A restaurant is completely in control of their program,” said co-founder Winston Lord. “It’s the restaurant’s brand and it happens to be powered by Venga, and we make it easy for the customer because everything is stored in one place.”
These upstarts could face stiff competition from the industry’s big players.
Maas said LivingSocial is “working on additional tools for merchants that will help them manage and improve customer retention,” but declined to provide specifics. Chicago-based Groupon announced a loyalty program of its own in September.
“There’s no reason why Groupon and LivingSocial can’t leverage their existing customer base and do very, very well in this area,” Krasilovsky said. “People say deal-a-days stink and engagements things are better, I think it’s all part of a much more comprehensive promotion ecosystem.”