The Long Tail Issue for Daily Deal Sites

Daily deals

When daily deal sites like Living Social and Groupon came to the market, many observers looked at it as another nail in the coffin for offline retailing.

By bringing huge discounts to consumers via their local business partners, Groupon and others like them would show business a new way to make more money, while bringing more customers to them.

Except it’s not quite worked out that way yet.

Short Term Gain, Long Tail Miss

The problem with daily deals sites – and, to be fair, any of the stack-em-high-sell-em-cheap options that many businesses look at – is that they’re not really set up for long-term loyalty. And that’s a key reason why so many businesses fail in general, and something that many daily deal partners are complaining about.

Sure, they’ll give customers a nice discount and a reason to come to your store or business in the first place. But where’s the incentive to come back if I’m a new customer, once I’ve taken advantage of your sale product?

Unless there’s a relationship sale versus a transactional one, if I don’t normally shop with you then I have no real reason to come back unless it’s for another daily deal. Which sees you lowering your profit margin to make the offer in the first place – not ideal.

Business and Consumer Apathy

It would appear that more folks from both sides of the fence are beginning to think like that, too. According to a new survey from Cooper Murphy in the U.K., a whopping 82% of businesses surveyed that have run campaigns on Groupon were unsatisfied with the amount of repeat business it brought.

Groupon repeat business complaints

Add these figures to a study by Rice University in May of this year, that reported just over 20% of daily deals customers become repeat customers, and you can see why the daily deals market is one that seems to divide opinion on its benefits.

It’s not just the business owners that are suffering. Because one of the major premises of daily deals is to attract the low-spend customer, restaurant and bar staff have found that customers using a daily deal offer will usually tip less than those paying full price. Ironically, the less you have to pay, the less the tip should be too, it would seem.

So what’s the answer?

Loyalty and Long Term Gain

Everyone likes a bargain. I do; you probably do; I know my wife does. It’s human nature – if we can pay less, we will (although paying more for extra quality isn’t a bad thing).

The problem with constant bargains is that customers get into the mindset that they’ll only wait for these bargains, and ignore you the rest of the time. Get ignored by customers and… well, you don’t need to be a rocket scientist to know the outcome of that scenario.

So while the short-term benefit is clear, businesses need to be building long-term benefits for the customers, to encourage return visits and loyalty.

  • Episodic discounts. Say a daily deal saves you 60% on the transaction. Instead of the one-off approach, offer three transactions saving 20% each time. On subsequent visits or purchases, have an amazing add-on deal that encourages further spend on top of the discount.
  • Split the location. If you’re an offline business, with multiple locations, why not split the offer between different locations on different days? A sports shop could offer different goods on different days of the week at different stores; a restaurant a different appetizer based on location; a movie theatre group, a different 2-for-1 admission to a different movie across town.
  • Promote loyalty. If you don’t already have one, build a loyalty card around your daily deals customers. The first time they come in, have them fill out a short form with their information, and then give a loyalty card with unique offers based around the daily deal. Use it X amount of times and they receive a free product or service (within a certain budget).

The beauty with the loyalty approach is that you can now tailor email and mobile campaigns to your customers (opt-in, obviously) that offers more call-to-action specials just for them.

Run that alongside any specials you offer existing customers, and you’re encouraging growth and repeat custom across the board. Which seems to be all that businesses and consumers of daily deal sites want, anyway.

Worth a shot, no?

image: jakelevine

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  1. says

    I like your approach Danny very much. I’m particularly intrigued by the idea of building a loyalty card around daily deal customers.

    The loyalty issue is further complicated by an unintended side affect of these types of steep discounts – a store’s inability to “handle the rush.” My wife was going through a particularly stressful time at work so I purchased her a spa package through Groupon. Unfortunately, the spa had such overwhelming response that they were book solid (at 50 percent off, mind you – a problem unto itself for the spa) for over a month. It was just…discouraging.

    I’m a firm believer in setting goals first and then adopting the tools and platforms require to achieve those goals. I have a true tale of two clients.

    Client number one sells one high-dollar product and that’s it. You buy the product from him and move on with your life. Loyalty is not defined by repeat customers, it is defined by referrals customers make. He had a new version of his product set to arrive in a couple of weeks so he called and explained he had leftover inventory of the old version. “I just need it out of my warehouse,” he said to me. “Get rid of his inventory” was my goal. He even said he was OK selling at cost. We went with Groupon, sold all but 9 units, and he donated those to a veteran’s facility.

    Client two is infatuated with Groupon. He asks me about it every time we meet. My response is always the same:

    1. Can you afford the discounts required?

    2. Can you handle the probably rush of customers?

    3. Are you going to pay me to design a program that will get those customers to come back a second, third, and fourth time, paying full price?

    So far his answer has been “no,” and therefore my response to his “instruction” to start a Groupon campaign has been “no.”

  2. says

    If you sell price and not value you create a very difficult situation for your business. Low price suggests that you can get item XYZ almost anywhere and that the only reason you are buying is because it is cheap.

    That is not a recipe for success.

  3. says

    This makes me think about the Costco, Walmart comparison. One is gunning for the absolute cheapest product by controlling all the avenues of distribution. While the other is very generous to its employees AND customers. Stocked items change regularly, a no questions asked policy on returns, and more of a focus on Value than Price. I’ll let you guess which one is generous, but one is a bit more focused on customer loyalty 😉

    In the online world it seems like this strategy is a no brainer and much easier to implement. Love your examples here, especially what you have to say about promoting with a loyalty card. I’m not really focused on daily deal sites, but this was a very interesting post, Danny. Thanks!

  4. davevandewalle says

    In the last week, I have seen a daily deal competitor here in Chicago run a deal for a tattoo parlor followed by one for Lasik eye surgery. Another one will give you a deal on a colonic.

    Both of these are examples of what is currently wrong with the business model – Groupon and its ilk used the economy to its advantage, but the business model is very easy to replicate and very competitive. So, the result…a whole lot of junk on these sites.

    When you’re in a local, traffic-oriented business, you’re being bombarded with vendors trying to sell you everything. Daily Deal sites are just today’s shiny object – and a good salesman armed with decent data and an okay brand name can really make some stuff happen – to the detriment of the shop owner.

    Grrr.

    Great post.

  5. says

    @Craig McBreen Look at the CEOs of both companies and you’ll see a distinct difference in how they go about things. The corporate culture is dramatically different.

  6. says

    Groupon doesn’t really exist where we are in France but I do hear you. I remember in Manchester being able to download a voucher for a meal at a great seafood place for a fiver – it was GREAT. Then I realised that the normal meal of £15 could be got every month for £5 with a voucher – needless to say I never went without one. Similarly now, certain brands who regularly play the mega slashed down rates means I never buy out of sale times. It TOTALLY devalues the brand. 110%. When you offer your core product at bargain basement rates regularly – even to a “small” market you are committing retail suicide. Am I a loyal customer? OH YES but to the cheap price. There are a whole list of brands who I will rarely, if ever, pay full price for. Do I rush to their flash sales … oh yes!

    Retail marketing has always been tricky, getting it right is such a tough call – sadly (for the brands )slashing prices has meant many hold out for those sales but in reality I think we might actually be in the minority (great for the brands)

  7. hppyplntcntrl says

    It’s hard for a small business to justify a 50%+ discount on goods and services, unless they look at the daily deals as a marketing expense and opportunity to reach new customers. But that ROI is questionable according to your survey results. Not surprising. But I do believe that instant deals from a mobile phone – and lesser discount – hold more promise.

    Happy Planet Central

    http://sites.google.com/site/happyplanetcentral/

  8. mobmanager says

    Our company has been helping customers manage daily deals for almost 6 months and have found that the deals work (well in some instances) when the deal was priced properly and they had a managed system to manage customer follow up. Our research shows that of the daily deal customers we followed with by email with a smaller coupon – we see nearly a 10% return rate within 30 days of the previous visit. The biggest component to the success of the deal comes down to pricing. In too many instances the deal site would sell a $10 for $20 – and if they would have only offered a $7 for $15 the merchant would have had actually made a profit on the deal.

  9. says

    I keep rejecting the offers my gourmet Ice Cream Sammy client get’s pitched. They are a massive rip off. 50% discount off list price to consumer. Then they want between 30% and 50% of what get’s bought. And then they hold the month 2-3 months before you get paid.

    Latest was Diapers.com Doodle Deals. 80,000 families with little kids. I like their demographic but can’t justify the deal. I told my client I would rather stand in front of Babies R Us stores handing out two for one coupons. At least you get your 50% up front when cashed in.

    Recent article shows Groupon possibly going under. They are bleeding money so fast I see bad news for them. There is a race for them to IPO so the VCs and owners can cash out and hopefully leave retail investors (main street) the ones who lose their money. Same strategy Facebook is using.

  10. says

    @mobmanager sure will do that Dave. One issue for this specific client is they are upscale premium and small biz so cash flow right now is critical while they grow. But would love to have some feedback.

  11. says

    Danny I want to add about the discount syndrome. It is an issue I have with FourSquare, Gowalla, Couponing, Daily Deals etc. There are some favorite restaurants I frequent that in a local circular always have a 20% off $50 or more. If I know I will always get this discount my view of the menu will be discounted. If I know I will always get free Chips and Salsa at Chilis for checking in on Foursquare then Chips and Salsa are always free if I go there. I see this all as not only margin killers but could be a major swing in the wrong direction for the value/perception customers have of your product/service.

  12. Roger_Tee says

    Hi Danny,

    Great summary of the core problem of daily deal discounting.

    As you know my startup company has been prepping a mobile/web-based solution for businesses that focuses on building loyalty effects. We’ve been hanging in the weeds waiting for the daily discounting craze to crest and crash and it’s looking like that’s starting to happen. timing is everything and the discounting backlash is beginning.

    We’ve put 2 years of work into researching the problem of hyperlocal customer engagement in this new mobile/social world. We think we now have a killer solution for the SMB, and for the consumer, that focuses on relationship versus discount in a way that is way beyond the “digital punchcard” approach.

    We are launched in private beta now in Colorado and will be launching more broadly in September. Would you be able to get on the phone with me sometime here in August? I’d like to give you a private preview of what we are doing and get your input.

    Cheers,

    Roger

  13. Roger_Tee says

    @HowieSPM Exactly!

    For simple proof of the fact that a long term adherence to a “Premium pricing for premium products with no deep discounting” is the right way to do business, you have only to look at the news this week of Apple exceeding ExxonMobile as the largest Market Cap company on the planet.

    1. Charge a premium price for a premium product delivered with premium customer service. 2. Refuse to discount when your competition tries to race you to the bottom.

    3. Relentlessly focus on Quality and service.

    4. Win in your market.

    It take perseverance and nerves of steel. But it is a simple process and it works.

    Roger

  14. says

    @Roger_Tee Roger will you be launching in Los Angeles? Would love to talk. My business focuses on mobile solutions for clients. I am very opinionated for mobile in terms of protective about having it all become spam like email has become. So a champion of opt in conditioning vs push advertising. But it is very tricky when it comes to the value proposition. So I am against Geo-Fences, Auto-Checkins, and Push Loyalty programs because after you sign up for enough of them even with good intentions your phone becomes a spam box just like email now.

  15. says

    @Roger_Tee Hey there Roger,

    Would love to see what you’ve been up to, mate – been a while in planning, as you say, so curious to see the end result. I’ll ping an email your way with some dates?

    Cheers, sir, and good luck with the launch.

  16. says

    @HowieSPM I hear you on that, mate – I don’t think I’ve used a single offer or daily deal, even though I check in at places and subscribe to newsletters about daily deals.

    I’m more than happy to pay the premium, because I know the effort that goes into running the majority of the places I frequent. And that wins over $20 off every time.

  17. says

    @Roger_Tee@HowieSPM And the irony is that people perceive premium content to have value from the off. It’s why premium ebooks seem more valuable than free, even if the content is similar.

  18. says

    @HowieSPM That’s definitely a key problem, mate. I know local retailers in my city that have tried the daily deal route and saw nothing for their investment (apart from one who ended up losing on the deal as the customer complained about the meal, but that’s by the by).

    I’m wondering if there should be a pay-by-performance approach, and the deals site manages the promotion and gets paid by sign-ups?

  19. says

    @hppyplntcntrl Thing is, many deals come through mobile via the site’s app – the core problem of repeat business and loyalty still remains, especially if people perceive the approach to be spammy.

  20. mobmanager says

    @DannyBrown @mobmanager we are using seo, some direct sales, and building awareness. We just got an endorsement from the Chicagoland chamber of commerce.

  21. says

    @Ameena Falchetto See, that raises an interesting point, Ameena – do the shoppers like you keep a brand afloat, or contribute to its demise (and not using the term “shoppers like you” in a bad way!!).

    If a retailer has constant traffic due to sales, even with lower profits, are they better off than a retailer with less sales but higher profit?

    Hmmm…. :)

  22. says

    @mobmanager But from a customer angle for your clients, are they opt-in from your site, or push marketing via email lists?

    I’m just curious, since I always opt out of anything that’s sent to me unsolicited, so wondering about your approach and success rate?

  23. says

    @davevandewalle Great examples of how random the daily deal market is, mate. I know you can filter what you get sent, but I’m wondering if there isn’t an opportunity for a micro-targeted daily deal site, where it’s specifically for a certain niche or demographic, and nothing else?

    Of course, that might already exist. If so, be curious to know its success rates compared to random deals.

  24. mobmanager says

    @DannyBrown ah. Sorry. We send the email on behalf of the merchant/client. 60% of people that give an email optin.

  25. says

    @Craig McBreen I know whenever I shop at either location, the Costco one just seems a more relaxing experience. Though I don’t like the fact they don’t offer bags – I only have two arms… 😉

    We’re working with two local businesses at the minute, building a loyalty program into LBS marketing. I’ll share how that goes in a future post. :)

  26. mobmanager says

    @HowieSPM no worries. From our experemce payment terms from the deal site along with deal terms like commission paid to the deal site can be negotiated.

  27. says

    @TheJackB Great point, mate. I know when we published our first premium ebook, I got a bunch of emails saying “Thank you for charging”, which I thought was weird. But it came down to the very point you make about the value proposition on premium offerings.

    Cheer, mate!

  28. says

    @ClayMorgan Haha, so true, Clay. My mate went to Starbucks at the local Indigo bookstore, and got a blank look from the girl behind the counter, even though it was a national Starbucks promotion for that day.

    I think education is where so many of these daily deal sites (and the likes of Foursquare, Gowalla, etc) fail. Sure, it’s great you’re offering this, but the general public doesn’t know much about it, and often the staff know even less (though I’d say that’s the business’s fault, as opposed to the deal site). Educate better on the value, marketing and repeat opportunities, and you might see a better percentage for satisfaction.

    Something your example shows clearly.

  29. Roger_Tee says

    @HowieSPM @Roger_Tee hi Howie! Yes we are planning an LA launch. We are looking for an exclusive launch partner in each city we launch in. Based on your comments about spam I think you’ll like our model. Send me email at rtoennis_at_gmail and I’ll brief you next week. Always looking for input from marketing pros/vets.

  30. Roger_Tee says

    @DannyBrown Definitely Let’s talk this coming week. What I’ve learned about this whole challenge is market timing is critical for success. We’ve had a clear understanding of the right solution model for hyperlocal for over a year. But te market hasn’t been ready for the solution. The discounting frenzy has to play out and pass before businesses are prepared to adopt the more effective loyalty strategies compared to the snake oil that is this discounting madness. It’s allowed us though the time to really soak with our merchants and codesign the right solution both in stategy and tactical implementation. You can’t just throw technology like QR codes or checkins at customer loyaty and have it deliver real business value. We’ve learned that in the trenches and figured out the right mix of technology and ease of use for realword, hair on fire small business owners.

  31. Garth Shostal says

    It’s a good awareness aspect for new businesses, however, in our “cheap” society, there is a major disconnect with the general population in regards to economics. The general population is that economics revolves around the immediate amount of money that is in my wallet. There is no realization that if I do not support local business, there will soon be no place for me or my kids to work. At that point, people start to demonize corporations and demand that they “pay their fair share” of taxes since the general population is seeing higher unemployment rates.

    50 years ago – heck even 25 years ago, the economy was driven by small business. Now, it’s not small business but large corporations and government that employs the majority of business. Well, what happens when the economy makes a downturn? The corporations lay more people off, and small businesses close.

    So what does this have to do with “deal sites”? Well, it conditions people even more to be cheap. Cheap people do not drive the economy – they destroy it, and these sites just feed the beast.

  32. Janis La Couvée says

    don’t get me started….. I’ve seen businesses really suffer when they haven’t run the numbers.

  33. says

    Good stuff, DB. Not a fan of daily deal sites at all, really, for the reasons you mentioned. People come back to a business because of people and experience, not because they got a good deal one time. They can probably always get as good a deal or better somewhere else the next time.

    One thing I find interesting is that none of these deal sites have done anything to promote loyalty around their offerings and have instead gone after the discount. What if more loyal customers got better deals? Or what if companies engaged their Foursquare mayors in a separate type of loyalty program and worked to get feedback from them on the customer experience?

    My wife did a Groupon a few months back and we had a LONG talk about it. I wanted her to understand that not only should she look at it as a marketing spend, but also to realize that the experience (not the savings) those Groupon customers had when they came in her store was what would determine if she’d ever see them again. She was what could make a short-term customer when they walked in her store a long-term customer when they walked out. Not the fact that her store name was associated with Groupon. Cheers!

  34. says

    You’re spot on as usual Danny. I worked as a Happy Hour DJ in my previous life. We offered tasty free food with a one drink minimum for Happy Hour. I saw the same people in there day after day…eating all they could and getting their 1 drink. The bar made money only because some travelers would stay into the night and have some drinks, but the local deal hunters were only there to take advantage and were a loss leader for the hotel.

    GroupOn actually tells its businesses it promotes loyalty, but on its site in the footer links it has “Live on GroupOn’s.” Sounds like these guys could run for president…promising both sides the world.

    To GroupOn’s credit, they do get businesses “in front of” a lot of faces. Its not a bad way to get some introductory exposure. But its not a long term marketing strategy and in fact, that is what will probably kill the daily deals.

    If a business wants to develop loyalty, its got to be in superior quality over price. Discounts should be offered from time to time, but 10% works better than 50% for attracting the right customers, in my humble opinion. If you offer too much of a discount, you cheapen your product. The problem with GroupOn is that they won’t let you take this measured approach.

    This is a fascinating subject…and in a time when we are all becoming bargain hunters, but still know we need to get locally loyal…its the perfect time for small businesses to get the “right” strategy in place.

  35. Craig Stark says

    I have yet to see an offer that considers my preferences or needs. Total noise in the signal to noise ratio.

    Same with facebook ads. These social apps are anti-social in that they rely on demographic data and geo targeting rather than socialgraphic targeting. Most are seemingly simple e mail push offers.

    I’d like to see a dynamic bidirectional system of offers that use their aggregation benefits to find me offers based on what we want-not a serial birrage of crap hitting my inbox.

  36. says

    @Roger_Tee@DannyBrown Now you’ve got me interested. Love watching startups and as a long time web developer, I can tell you, loyalty and quality referrals are the bread and butter for any small business. Any program built around those two areas is truly needed.

  37. Roger_Tee says

    @LynxToTweet @DannyBrown thats exactly our focus. Loyalty focus and rewarding and recognizing loyal customers for word of mouth brand evangelism. We’ve got some secret in the works to make it viral on the consumer side. That will cone out in October.

  38. says

    @Roger_Tee@DannyBrown Great…well just let me know when things shake out. I’d be interested in seeing where you go with things. I’m on Twitter and Facebook.

  39. says

    @DannyBrown It’s the low margin high turnover vs. high margin low turnover question isn’t it? Chicken or the egg … ? Brands, provided they preserve their values, quality and look after their fans, pricing is not really an issue IMHO.

  40. says

    @DannyBrown@TheJackB Value is always interesting. Giving something away devalues something for sure – the tricky part is making sure the pricing is right – something is only worth the price someone is prepared to pay for it which is obviously linked to value.

  41. Chris_Eh_Young says

    As I said on G+ Danny, the majority of people that buy group deals are deal dedicated, not business dedicated.

    With unsatisfaction rates that high, competition growing quickly, and repeat rates falling drastically, the group buy model as it sits now is doomed.

  42. says

    Since I have worked in retail for most of my life, I have to reply to this. I worked in Nordstrom in Women’s shoes for several years. They only have a few sales per year, and a very loyal customer base. I doubt very much they would ever have to resort to Groupon or any other kind of “daily deal” gimmick. When i was with them, I maintained a personal book of clients, and would when things were slow, call them because I had shoes I knew they liked, by brands I knew they purchased.I was loved by my regulars, because I took notes on what they liked, sizes names of children, etc. I even wrote (by hand) thank you notes to those I had not seen in a while or large purchases.

    Customer service always breeds loyalty. Cheap deals get people in the door but will never retain them. If you really want lifetime clients – Groipon is not the way to go. I go to a small hair salon near me. they serve you hand over foot. They did a Groupon back in June. Next month when I go back to get my hair done, I am going to ask how they did with customer retention, since i am highly curious.

    I love this topic, and could go on about it even more – but I will stop here, since I am certain I stunned you already. I bet you didn’t know l have any business sense did you? :)

  43. says

    @NancyD68 Great points all round, Nancy.

    I think Groupon, and sites like them, are better-suited to the small business owners, where there are no chains involved, and it’s just a family-owned store.

    Even then, though, these guys might not even need that, since many could be offering the personal touch that you showed so well, and have loyal customers anyway. It’ll be interesting to see if any of these sites are around in 12 months time and, if so, in what shape.

    And I already knew you were a smarty. :)

  44. says

    @Chris_Eh_Young Agreed, mate. As I mentioned to @NancyD68 above, it’ll be interesting to see how the playing field lies in 12 months time, and see what the offerings are like then. I’m wondering if Google will be a bigger player, with its Latitude, Maps and Wallet combining to take on LBS.

  45. says

    @LynxToTweet Thanks for the hotel example, Drew – seems to be one that’s all too common, unfortunately, with the deal sites. Like you say, where’s the loyalty except to the deal?

    I’m wondering if Groupon and others actually worked more closely with the vendors, and saw what would work for their market, if they’d encourage a larger retention rate? Because it can’t be doing Groupon any good to see the amount of non-repeat vendors.

  46. says

    @JGoldsborough Love your ideas, mate, especially using the Mayors to help tune the experience (mind you, I’m not a fan of rewarding just Mayors, but that’s another topic!).

    My business partner Troy wrote a post about a local vegan shop, that correlates perfectly with your points about loyalty and the user experience:

    http://www.troyclaus.com/food-is-kind-but-kind-food-is-better/

    Surprising how many businesses still don’t get this one simple thing right…

  47. says

    Know what’s hilarious? When the Google dance with Groupon was coming to a head I had a complete post written in my noggin titled “The Long Tail of Groupon”. Totally different topic. Nearly identical title.

    Mind you, this was back when I was bullish on Groupon and other daily deal sites (like a whole 5 months ago!) I was ready to defend Google’s bid for the business as NOT being too high, because I saw immense value in slicing and dicing the customer base based on unique interests. I still believe Groupon has immense possibilities, but not if they do not tap substantially into the data that drives their customers. I think that’s still possible, but they seem to have grown substantially as a sales culture (would have also been a significant issue as they integrated into the Google-Borg hive mind).

    Interesting read for a Sunday Morning Danny.

  48. says

    Now, this was something to read and also interesting. I know from a consumer stand point that this makes a lot of sense to see businesses not seeing long term business come out of these services because as you stated most of them are one time by specials. But, if they can figure out a way to integrate this great deals into a more membership long term way then the companies could really then see some of the benefit of using groupon and living social. Great post Danny.

  49. says

    @Justicewordlaw You only need to look at Apple, and how they have such huge brand enthusiasts, to see that premium sells if the offering is right.

    I get that offering deals and discounts might get you short-term buzz, but if it doesn’t sustain over a longer period, I wonder how beneficial it actually is…

    Cheers, sir, hope you’re well.

  50. says

    @Sean McGinnis That’s the thing, mate – from what I’ve seen so far of daily deal sites, the offering is pretty random. Make it better targeted, based on search, clicks and location demographics, and you’d have a far stronger platform.

    Funnily enough, guess which company has all the information on search, clicks and location demographics… 😉

  51. JeffKryger says

    I’ve thought for a while that Daily Deal sites were going to be one-hit wonders for businesses, so your stats don’t surprise me. I like your suggested alternative discount approaches, those make way more business sense!

  52. says

    @JeffKryger Cheers Jeff.

    The news today that Groupon has posted a loss of $103 million in Q2, despite sales being up, suggest there’s something wrong with the model as it stands. Wonder if they regret turning Google down now, when they came calling with $6 billion in their pocket…

  53. says

    I’ve not sorted through the comments yet, so if I’m being redundant, apologies.

    I have a colleague friend that was booked into helping build a site like this and she asked me for suggestions of products to promote. I explained to her frankly that I have a problem with sites lie Groupon for this very reason. It’s like the discussion of brand advertising versus direct response. It seemed to me that only people with deep pockets could afford to cut their costs so deeply – even for a given volume of sales. And when the ROI was discussed, well, let’s just say it was a short discussion. I take a Jerry Maguire approach to these things. If you can’t show me how the money’s going to come back to me, how can you expect me to invest? They don’t – they expect you to spend, and that’s not something I’m ready to do in my biz.

    Plus, as you say, we’re training people how to behave and what to expect. I rarely do sales in my business for that very reason. I don’t want my clients to wait around to “get a deal” when I’m already affordably priced for the results I produce. Daily deals are a fad that hurts everyone except the company raking in the commission.

    For a restaurant, who may have a high markup on food, it might be a great way to get people out of their comfort zone and try something new. But as you said, it’s the waitstaff, not the restaurant, that takes the hit in the pocket book. For retailers I’ve talked to in my area, Groupon is often a loss leader – emphasis on “loss”.

  54. says

    @lisarobbinyoung Part of me thinks the Groupon model (big discounts, few repeat customers) would be better suited to seasonal sales. You get Christmas, Valentine’s Day, Hallowe’en, whatever, and do a big push then for specials on these specific days.

    You’re not too bothered about taking a small hit then because – hopefully – the traffic will be so big that the incidental sales will make up for any shortfall.

    I don’t know – just seems to be a great opportunity somewhere, and the current model is (possibly) missing it.

    Thanks, Lisa!

  55. says

    @DannyBrown I tend to shy away from loss leaders because of my belief that we train people on how we want them to behave with us. So yeah, if you can find a market where there’s a big margin, that won’t hurt someone to offer that kind of deal, you’d have a great opportunity. Unfortunately, only jewelers come to mind right now, but my personal industry experiences are limited to what I’ve got in my own back yard.

    But you make some good points about spreading the deal around, because then it’s a more beneficial (more bilateral) agreement all the way around. You’re encouraging repeat customers & the potential for loyalty, while raising the consumer’s barrier to entry only slightly. If they really want that 60% off deal, they’ve got to shop twice instead of once. That means, they’ve really got to want it, which to me reduces the number of tire kickers and freebie seekers.

    In my own practice, I offer the graduates of my intensive coaching program a substantially lower rate for the one-off “follow-up” or “check in” sessions. I’ve never liked the idea that cable companies offer their best deals to new customers only, and wanted to flip that around to reward my loyal clients. Plus, it gives me a way to keep in touch when a client might not need my intensive services anymore.

    That, to me is an example of rewarding loyalty in a big way – to keep them coming back over time.

  56. lauraclick says

    Ah, Groupon. There’s just so much to say about this topic, isn’t there?

    I wrote about this several months back (here it is if you’re interested: http://flybluekite.com/2010/10/25/is-groupon-good-for-business/)

    I think the problem is that Groupon and other similar sites do a piss poor job of helping businesses make their Groupon successful. The business is left to figure out a campaign that makes sense, and, like you mentioned, may shoot themselves in the foot. Also, the business really needs to think through how to capture the attention (and contact information) of these customers and encourage them to come back. The problem is that so many businesses don’t know how to create loyalty campaign (or don’t think to do one) and Groupon certainly doesn’t offer that kind of guidance.

    Groupon is attractive to small businesses because you don’t have the outlay of hard costs on the front end. Unfortunately, these businesses are hoping for a silver bullet and they don’t get one because they don’t know how to maximize the campaign and Groupon doesn’t offer that kind of support.

    At the end of the day, Groupon is great for consumers, but not usually a great idea for businesses.

  57. says

    @lauraclick You know, reading your comment, Laura, it became clear what the daily deal model reminds me of, and why businesses aren’t benefiting (by all accounts). It’s a bank business loan model, but one with higher interest rates than an actual loan.

    Like you say, businesses are seeing it as a golden goose, but whereas a loan is paid back longer term, Groupon takes a percentage from the off, and on every single purchase. For many businesses, that’s too much of a jump and they’re not getting the return they need.

    Add in the lack of return business, and it’s a win for the daily deal sites, and (seemingly) less so for the retailer or partner.

    Mind you, Groupon just posted a loss of $103 million in the last three months, despite sales being “up”, so maybe they aren’t winning after all?

    Look forward to checking out your post.

  58. says

    Hey Danny, Being in retail I’ve looked into these types of sites a few times. The forced discount and the high cut of revenue the deal site takes often puts the business receiving 20-30% of what it normally charges. So, the deal is usually a money losing proposition for the company — which is fine, but that means it’s a marketing expense, and its performance should be evaluated that way. Certainly, there are certain businesses and industries that are exceptions. However, some generalizations seem to hold true for most…

    * Reach – decent, and usually greater than any qualified list the store has

    * Targeting – terrible, as the customers are mostly one-off deal-seekers

    * Add-on sales — terrible, even for the businesses that have a decent add-on offering (many do not)

    * Conversion/Retention – terrible, again… one-off deal-seekers

    * Branding – negative, as the heavy discounting only dilutes value

    So as a marketing strategy, which it has to be considered, it fails pretty obviously.

    I think a lot of the suggestions you make in the post are sound, but are better just done directly, not through one of these deal sites (at least how most of them currently operate).

  59. says

    @adamtoporek Hi mate,

    That’s a great point about it being a marketing expense – if more businesses looked at it that way, I wouldn’t be surprised if it forced the hands of the daily deal companies to make it a far more attractive proposition than it currently is.

    Sadly, I don’t think holding our breaths will be a good idea on that… 😉

  60. lauraclick says

    @DannyBrown I never really thought of it that way, but you’re right. It does feel a lot like business loans….or maybe more like payday loans!

    That’s interesting that Groupon posted a loss. It will be interesting to see where things go from here. There seems to be a glut of deal sites on the market and I just don’t think it’s possible for all of them to survive. It seems the only ones who are really benefiting from all of this is the consumer – not the deal site or the businesses. After all, how can they when everything is discounted so steeply?

    Thanks for checking out my post – I appreciate it!

  61. Shooka says

    Hi Laura, we would love it if you would write an article about our little start-up. Our site is (www.Shooka.com) and it was created specifically to address all of issues that Groupon, Living Social and other daily deal companies miss. We are starting to convince the Merchants to give away their goods and services to generate leads in the form of e-mail signup to a list the merchant can then market to in the future via back-end marketing tools we have created. The focus is two-fold, give consumers the value and drive them into your store like Groupon, but then offer the Merchant (especially the ones that are not email savvy) the ability to market to their interested audience. This is a company that should get more attention, because it appears to be the future of Flash Deals. @lauraclick

  62. foodgeek says

    Good article! I totally agree with your comments about loyalty and long term gain.

    Groupon and the like are turning our customers into fickle bargain obsesives who believe that the lowest price is the only factor to consider.

  63. TigranMekikian says

    Hi Danny, actually you discussed all of the points that our new site http://www.shooka.com addresses. In fact, we believe that the Merchants actually get the short-end of the stick when they go with Groupon or Living Social To make sure the Merchants have an advantage we have created a tool that allows for the Merchants to remain in contact with their customers long after the fact.

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