Tuesday, October 05, 2010

Discounts, Secret Deals, and Value: Learning from Groupon

Let's face it: there are people who are into coupons and there are people who are not. For people who love them, the coupon page is like a treasure hunt, full of exciting things to be discovered. Coupons are usually time-limited, and that's part of the appeal--to find the thing available THIS WEEK ONLY in time to use it.

Not everyone gets excited by this. Coupons have a narrative, but in most cases, the narrative is pretty mundane. I can get 30 cents off of yogurt. Great.

But recently, an online coupon company called Groupon has made big waves not by offering the best or most coupons but by focusing completely on amplifying that narrative of discovery, so much so that people get caught up in the excitement and use the site to purchase goods, services, and experiences they otherwise would not buy. Groupon is an audience development machine, and it's highly relevant to cultural institutions looking to attract people with promises of exciting new discoveries within.

Groupon is a website that offers deeply-discounted deals on goods and services, mostly from local businesses. A coupon goes up for half-price museum admission or spa treatments, and users have one day to buy. As on Kickstarter, a minimum number of coupons must be purchased for the deal to happen (although these days, 98% of Groupon businesses make their minimum). While restaurants make up the lion's share of the offerings, there are all kinds of experiences--from tree ziplines to hot stone massages to photography sessions--that garner interest as well. Groupon takes 50% of every fulfilled deal, so if a business offers a $20 product at $10, the business takes $5 and Groupon takes $5 when that coupon is fulfilled.

Groupon delivers huge volume. The Art Gallery of Ontario sold 4,285 half-price admissions in one day last month. The Cleveland Museum of Natural History sold 1,318 half-price memberships last week. For companies that sell products or personal services, Groupon can be a tricky form of advertising. Too much response, and you find yourself operating at a deep discount, scrambling to provide 2,000 haircuts to people who are paying less than market rate. But for museums, which mostly have extra space to fill (and a low per-customer operating cost), this isn't a big issue.

For now, I can't speak on the extent to which Groupon museum purchases are attracting new audiences and converting those folks into more dedicated visitors. The data is still too fresh in most institutions (please, share your experience in the comments). Instead, I want to focus on the psychology of Groupon, and the question of how this kind of discount is different from others.

I've written before about the problems of value memberships and museums that sell themselves short by focusing on membership as "good deal" instead of as a special experience. Groupon is different; it turns the discount itself into a special experience.

Does a Groupon promotion devalue the visitor (or member) experience? If you get a $10 museum admission for $5, does that make it a special treat or a cheapened experience? Are the people who buy a half-price membership less likely to take advantage of its value, and thus waste institutional resources lavished upon them?

Museums deal with this question all the time when it comes to free or discounted days. The general sense is that yes, people who come on free day do have different patterns of use from those who come on admission days, but they aren't necessarily less engaged or interested in what the institution has to offer.

What makes Groupon special is the same thing that makes free day special--the sense that this is a unique, limited opportunity. While free days and discounts make the institution more accessible to more people, the specificity of the event or coupon makes it feel exclusively for people "in the know." There's an insider feeling that comes when you get a deal or experience that not everyone gets. You even feel it when you share it with others--there's the cache of being the person who let others in on the secret.

This is extremely strange when you think about it. It's an insider experience that is completely public, just time-limited. The whole argument about discounts devaluing the experience shifts when you talk about offering something "special" instead. At the San Francisco airport, when long-term parking is sold out, they hand you a voucher to park in (the much closer) short-term parking for long-term rates. The voucher says "This is your lucky day!" and I do feel a sense of thrill that I've gotten a surprise steal when it happens. It doesn't make short-term parking (at twice the price) feel cheap. It doesn't make the experience feel more or less special at all. Instead, it makes me feel special.

I was thinking about this when a librarian friend told me "the first thing I do when I have a prolonged interaction with a patron is waive any fines on their account. There's no better way to advertise what the library's about." He explained that fines do contribute to his library's bottom line--about 3% of operating budget--but that the benefit to that patron of having that special moment, that friendly, insider feel is worth the loss in revenue. Advertising of any kind costs money. In the library's case, the goal is to build customer loyalty. In Groupon's case, the goal is to bring new people in the door.

There's overlap between the group of people who would buy at full price and those who need a discount incentive (see this great post for a geeky take on how Groupon shifts the demand curve). Last year, when the Brooklyn Museum offered a membership at deep discount on Groupon, they also offered it as a renew option for current members so existing members wouldn't feel like they had been "penalized" for buying a membership at full price. They didn't go out of their way to reach out to members and say, "Hey! Cheap renewal today!" because they do believe in the value of their membership price, but they did want to be fair. They were offering a special thing, on a special day--for everyone special enough to jump on it.

In this way, Groupon is a perfect demonstration of Joe Pine and Jim Gilmore's principles of theatricality presented in The Experience Economy. In the book, they argue: "instead of leading customers to expect free goods, companies could use the same money to create a memorable experience." They champion businesses that replace uniform discounts with surprises that reward loyalty or just being lucky. The psychology of the personal gift or surprise is very different than that of the discount. Groupon is theatrical--the ticking countdown, the question of how many people will join in, the excitement of discovering something new--and that sense of theater fuels its success.

The thing I'm learning from Groupon isn't that people love a deal. It's that people love a specific, targeted, exclusive opportunity with a dash of excitement and a light narrative thrown in. And that's something that cultural institutions could offer in all kinds of ways beyond the admissions desk.
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