March 16, 2015

Should Businesses Ever Consider Daily Deals?

A few years ago it seemed like the daily deal industry was in the news everyday. It seemed ground breaking and disruptive in a time when the word disruptive wasn’t used ad nauseum. But the question that comes to mind is what happened to this industry and is it still thriving?

Infographic - iOS vs Android Marketshare

Daily deals seemed like the answer for fledgling brick-and-mortar businesses. The business signs up, offering to provide their products or services at a substantial discount, but still at a slight markup. The deal company gets a cut of each transaction it brings in by offering the deal on its website. Over time, the deal website becomes a platform that consumers associate with good bargains, which garners more traffic.

It seems somewhat risky for businesses, but most small business owners would agree that offering a reduced rate (but not netting negative) in exchange for exposure is just a cost of the trade. Groupon pioneered this business model and within months there were many new upstarts in the market. But interest in daily deals from businesses has clearly died down significantly. The graph below shows searches in the US for “daily deal” or “daily deals” and, after a sharp peak in late 2011, there’s a continual decline that indicates a dying industry.

Google Trends for daily deals

If daily deals result in exposure for the business, savings for the consumer and profit for the deal company, what’s wrong with the model? Well, after analyzing the outcomes from a number of daily deals it becomes clear: companies like Groupon and Living Social take far too much from businesses. And sometimes the problem areas of a daily deal agreement don’t seem all that apparent.

The infographic below emphasizes some of the hidden costs of doing business with a service like Groupon. Here are some of the factors a business might not immediately think of, but could definitely result in one of the many daily deal horror stories we hear of so often these days. Here are the top three factors that can cause a daily deal to go awry for businesses:

  1. A Large Influx of Business can Upheave a Business ModelTake the case of a British bakery who offered cupcakes at a 75% discount. A huge amount of orders came flooding in, and the business was forced to scale quickly. Unfortunately, scaling without a careful expansion strategy frequently leads to disaster. This bakery had to produce 102,000 cupcakes. To accommodate such a colossal request 21 extra bakers had to be hired. When all was set and done the figure was a net loss of about $19,500.
  2. Payment Processing Charges –  Many smaller businesses aren’t equipped to process credit and debit cards, or don’t factor in the costs from a payment system, which ranges from 1-4% of every transaction. An amount like that may seem trivial, but when a business is already slashing their margins in exchange for publicity, a few percent can offset the fragile balance that’s holding its financial viability together.
  3. Bargain Savvy Customers – Services like Groupon don’t attract consumers from all demographics and market segments equally. On the contrary, they catch the attention of a very particular type of customer. These people tend to be bargain savvy: knowing the exact cost of competing products, which means they often judge businesses without making a full and fair assessment.
  4. Online Reviews – Perhaps the worst of the factors are online reviews on sites like Google+ Local and Yelp. Imagine a scenario where a business provides an exceptional product with well above-par service. They sign a daily deal contract and are flooded with interest at certain peak hours. Their operations can’t handle this sort of a load and parts of their model begin to slip: customer concerns can’t be addressed in a timely manner or there’s just not enough time to test the quality of all products. What happens? Angry and web-savvy customers go online and obliterate the business’ reputation—forever (or at least until the business relocates, changes its name or develops a costly strategy to manage their reputation).

Now we’ve painted a bleak portrait of the daily deal industry here, and it’s a portrait congruent with the data, which shows a prominent decline in the demand for and support of daily deals. While this is all true, we do believe there’s still a place for certain categories of deals. Innovative eCommerce products find a home on the design focused product deal site Touch of Modern. Software deal sites like Mighty Deals and StackSocial can be extremely beneficial to those selling SaaS products or standalone software resources. Because these use-cases don’t involve the overhead of maintaining a storefront, there’s much more room for profit and much more need for exposure, because on the Internet passerby’s aren’t source of traffic and interest.
 

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Orun Bhuiyan

As SEOcial's marketing technologist, Orun loves to discuss his hard-won knowledge on topics like SEO, programming and design. He's an enthusiast in emerging technologies, including big data and the semantic web.
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SEO is the process of affecting the visibility of a website or a web page in a search engine's un-paid ("organic") search results.
The semantic web refers to the next stage of the world wide web and aims to ascribe semantic meaning to all web content through a collection of systems of classification. This means that, in the future, machines will be able to better understand the content we produce, resulting in better search results, new applications and an Internet that is fundamentally different from the one we use today!
What if each of the objects around you had a unique identifier that can be connected to the Internet? The goal of the Internet of things is to equip all objects in the world with tags that allow them to be digitally organized or manipulated. The implications? Less theft, less waste and the ability to control your surroundings in a manner never before possible.
Conversion optimization is the practice of modifying the parameters of a lead-generating system to stimulate a higher success rate as defined by goals. Most conversion optimization is structured to create an increase in ROI (return on investment). We frequently use multivariate and A/B split testing when optimizing conversion, wherein we test two or more systems at the same time, analyze their performance and deduce precisely what action items will bring us closest to the set goals in the least amount of time.
Market diagnostics or analytics is the process of collecting and analyzing business data — especially consumer data. This allows us to assess and improve the effectiveness of a marketing campaign.
In many applications today, there is such a phenomenal quantity of data available that it's difficult to collect and process with traditional database tools. The field of collecting, manipulating and drawing conclusions from massive quantities of data from a particular source is known as big data.
What started as a CMS (content management system) that was only meant to create and edit blog content has grown at a tremendous rate to become the most ubiquitous system for developing websites on the internet. WordPress accounts for an incredible 15% of all sites on the web.

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