Decoding the new economy

As Apple becomes the highest capitalised stock in US market history, former daily deals site and market darling Groupon continues to sink into misery.

Groupon led the group buying mania of 2011 and its stock market float in November of that year valued the business at 13 billion dollars, ten months later the business has a capitalisation of three billion, wiping out three quarters of its IPO shareholders’ investment.

To make matters worse for the daily deals site the New York Times features a story looking at deal fatigue, where customers tire of the daily emails offering discounted cafe meals or personal training while businesses find the deals just aren’t worth the trouble.

“I pretty much had to take a loan out to cover the loss, or we would have probably had to close,” the Times quotes Dyer Price, owner of Muddy’s Coffehouse in Portland, Oregon. “We will never, ever do it again”

In a straw poll, the Times correspondent visited neighbouring businesses who had similar stories.

The common factor with all the business horror stories surrounding group buying or deal of the day sites is high pressure sales tactics that blind the merchant to the downsides of these offers.

For these services, it’s essential to move through as many deals as possible so salespeople are driven to sign up as many merchants as possible. When you put pressure on sales teams, they tend to behave in ways that aren’t always good for customers.

Most of the customers Groupon attracts – or those of other deal of the day sites – are price sensitive and fussy. Having demanded their deal, most of these customers are not coming back so it may well be that daily deals are the most expensive, disruptive and pointless marketing channel ever invented.

The results of the high pressure tactics are shown in a Venture Beat story which claims Groupon is now threatening to sue unhappy merchants as payments slow and the daily deals struggle to attract customers.

What was always misunderstood during the group buying mania was that Deal Of The Day sites weren’t really technology plays – they were reliant on good sales teams driving deals. The technology being used was incidental to the core business concept.

In this respect, services like Groupon had more in common with the Yellow Pages or multi-level marketing schemes. It was about salespeople delivering orders and taking a percentage off the top. To compare Groupon with Google, Facebook or any tech start up was really missing the point.

This isn’t to say that group buying or deals of the day services don’t have a role in business. For retailers clearing inventory, hotels working around quiet periods or new businesses wanting to get attention in a crowded marketplace, there’s an argument for offering a deal on one of these sites.

For most though it was an expensive and pointless exercise that attracted the picky, price sensitive customers that most business would avoid rather than encourage. That’s the harsh lesson learned by many of the businesses who fell Groupon’s fast talking salesteams.

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Travel review site Tripadvisor released its 2012 Industry Index examining the 25,000 responses from hotels around the world and 1,000 Australian hospitality businesses who took part in the survey.

The index covers a wide range of areas of how the hospitality industry is dealing with connected customers, the web and how hotels are dealing with the relative performances of markets in Europe, North America and Asia.

A disturbing part of the survey was how many smaller businesses are falling behind their bigger competitors with less than half of Australian Bed & Breakfasts agreeing the statement that an “ability to book via my property’s website on a mobile device is ‘very important,” while 70% of hotels agreed.

The failure of smaller properties to engage online is borne out anecdotally as well, at a recent business breakfast a B&B owner – whose main business was furniture retailing – moaned about the negative TripAdvisor reviews his place had.

When it was suggested he might want to engage with the unhappy customers, the proprietor threw his hands up and said “our solicitor told us that it was too expensive to sue.” He wouldn’t accept that the dissatisfied guests might have a legitimate complaint that should be addressed.

At the same time larger hotel chains have full time teams monitoring comments on Tripadvisor, Facebook and other online forums, fixing problems that are being mentioned and then telling the world they have resolved the issue.

There’s a good reason for this. Ask someone planning a major holiday and you’ll find almost all of them are reading reviews on sites like Tripadvisor, Fodors or Lonely Planet’s Thorn Tree before booking accommodation or flights.

While many of the hotel management responses are boilerplate – repeated replies like “Thank you for your review and we appreciate you taking the time to share with us your experience as we are always pleased to receive feedback from our valued guests” is not what social media or customer service is – at least there is a perception that senior management is listening.

At many establishments senior management really is listening, a country manager of one of the world’s biggest chains describes how his three person team sends him a report each day of any complaints being listed online. These are checked out and any systemic problems they find such as surly front of house staff, poor housekeeping or incorrect billings are addressed immediately.

Having a direct line to happy or dissatisfied customers is one of the major benefits social media offers businesses. That smaller hotels aren’t doing this while their multinational competitors indicates the independent sectors of the hospitality industry are falling behind the majors.

The furniture shop owner with a B&B investment illustrated the problem, not only was he not engaging with dissatisfied customers on TripAdvisor, he had no idea whether his businesses were listed on Google Places, Facebook or any other online listing service – “my wife does that” was his dismissive answer.

Possibly the most overused quote in modern business is ice hockey star Wayne Gretzky’s “skate to where the puck is going to be, not where it has been”. Those smaller hospitality businesses not taking the mobile web, review sites or social media seriously aren’t even in the skating rink in today’s game.

There’s a lot more interesting ideas in the TripAdvisor report that should have any hospitality thinking about how customer service and marketing are evolving in a connected society. It’s worth a read.