Why Employees Can Wreck Promotional Offers
In theory, the social media site Groupon is a win-win for consumers and businesses. Shoppers get deep discounts at stores and events, and companies get a massive influx of customers. But there’s a crucial weak link in the chain, a vulnerability faced by any service company that’s offering a promotion: Employees.
If employees at a company using Groupon aren’t happy with the promotion, my research shows, customers may have a bad experience, and the company may obtain no long-term benefit. And many employees aren’t happy when Groupon comes on the scene: They’re the ones serving the meals and waxing the eyebrows of customers who are sometimes less than gracious.
“Most of the Grouponers are deal seekers,” one restaurant owner said during a survey I conducted of 150 businesses that used Groupon from June 2009 to August 2010. “They felt entitled to special treatment, didn’t spend more than the price of the Groupon item itself, and didn’t tip.”
Groupon is the best-known of several new sites that marry social media and coupon marketing. (Others include Living-Social, BuyWithMe, and Scoutmob.) It offers a daily deal—$50 worth of clothing from The Gap for $25, for instance, or a $175 facial for $59. The coupons are valid only if a certain number of people buy them, so would-be users must rally their friends, typically via Facebook or Twitter. Some deals attract more than 20,000 buyers.
Many coupons are for things you don’t usually see discounted—artisanal bread, kayak rentals, helicopter-flying lessons—and many of the participating businesses have little experience with coupons and bargain hunters. As a result, managers may fail to anticipate how an onslaught of customers will affect their employees. Workers often resent the extra work they have to do and don’t grasp the logic behind the special deal. “Some employees thought we shouldn’t be giving away the product for so little,” one business owner told me.
Overworked or skeptical employees are less able (or inclined) to create a positive customer experience. Their behavior can make the Groupon offer backfire, since two keys to reaping profits from the coupons are getting the Grouponers to buy items in addition to the discounted one and to become repeat customers who will pay full price in the future. In fact, preparing employees for upcoming promotions and obtaining their buy-in is the most important factor influencing a Groupon promotion’s success: Employees at businesses where the coupons generated profits had a 63% higher satisfaction rate, in terms of how they viewed customers, than employees at businesses where the promotions failed. This association is compelling evidence that managers deciding to try Groupon should take steps to keep their employees content—for example, by agreeing ahead of time to compensate them for longer hours or lower tips.
Another important variable affecting the success of Groupon discounts, of course, is how many of the coupon users are new customers; giving existing customers a lower price will hurt, not help, long-term profits. But it’s hard to overstate the value of getting employees into the right frame of mind for Groupons—or any promotion, for that matter. Your employees stand between your product and your customers, and ultimately they’re the ones who will make a promotion succeed or fail.
HBR Reprint F1101C
Utpal M. Dholakia is an associate professor of marketing at Rice University’s Jones Graduate School of Business.