Full Disclosure: CEO Reveals Disappointment with Daily Deals
Wine.com CEO Rich Bergsund was excited to partner with daily deal sites like Groupon and Living Social. The executive saw the sites as an excellent platform for getting the word out about his brand. The coupons were selling out for many companies, and Bergsund anticipated bringing in thousands of new customers.
Wine.com ran social coupons on popular daily deal sites 15 to 20 times. "We offered a lot of the deals because you just can't compete with that kind of exposure," Bergsund says. "It seemed like a great way to get people to our e-commerce site."
But Bergsund soon found out that the daily deal sites didn't always give the results he expected. The company took a loss on the promotions and found that few customers returned to the site later. "Daily deal sites have a very specific customer, and those customers are usually looking for deals. This makes them less likely to become returning customers," Bergsund says.
Bergsund shared his lessons with us, and hopes other businesses benefit from hearing about his experience before they decide if and when to offer a daily deal.
Wine.com is the nation's top online wine retailer. In addition to offering thousands of wines, the company also sells wine gifts, gift baskets, corporate gifts and monthly wine clubs. Wine.com offered daily deal promotions where shoppers could get $50 worth of merchandise for the price of $25. The company took a loss on the promotions, which was expected, understanding that a Groupon or LivingSocial deal could market his business to millions of new customers.
"The challenge with these deals is that you lose money on that first order, so the whole bet is that enough of these new customers make repeat purchases to fund that initial loss," Bergsund says.
Bergsund was excited when the deals sold out quickly. But once the dust settled, Bergsund was disappointed with the results. Few customers returned to make purchases, and those who did didn't spend as much as Wine.com's normal clientele, he says.
A Customer's Real Worth
"Our experience is that customers acquired in this way are not as valuable as customers we acquire through our other marketing channels," Bergsund says. "They don't repeat as much, and in many cases, even after 18 months they still haven't repeated enough to make up for the loss on the initial order."
Bergsund's experience could be typical of businesses that work with daily deals sites. Both Groupon and Living Social have struggled to keep business booming. The companies laid off a combined 1,000 workers last fall after interest in the deals waned.
It is possible for companies to successfully offer deals through the platform, says Bergsund. Working with companies like ideeli, Gilt Groupe or Rue La La, which all sell products of their own, results in a better experience because theses sites have more loyal customers.
"We've had better luck with the daily deal sites that themselves sell something, so they have active repeat customers of their own, not just folks who buy coupons," Bergsund says. "You don't sell as many coupons, but when you do sell one, you're getting a more qualified customer who stands a better chance of becoming a repeater."
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Photo: Courtesy of Rich Bergsund