The "daily deals" model seems to depend on a few things to be successful; if any of these doesn't work, then the model is in trouble:
1. It has to offer something compelling. The daily deal is asking a potential customer to commit now to buying something; if the customer could spend just a little bit more to get that thing at their leisure (or if they don't really care whether they get that thing or not), then they will.
2. So it depends on a supplier making an offer that is substantially better than any offer they're making anywhere else. This is bad for suppliers, as it can weaken their relationships with long-time distributors.
3. So the supplier will want to see the daily deals system reaching a market that they couldn't otherwise reach -- maybe a particular demographic, or a very large advertising-adverse market, or a lucrative and otherwise impenetrable local market.
4. And that market has to have disposable income to spend on things they don't really need, and the desire to do so.
Unfortunately, the various goals here are all mis-aligned. You can't really expect the same market to buy something from you every single day, especially if you're offering high-ticket items, so you can never reliably expect to extract purchases from more than a percentage point or two of your market. This is not at all attractive to your suppliers, who will turn to other forms of distribution that might be more lucrative -- they could for example just run a sale on their own site, get picked up by a deal aggregator like dealnews.com, sell items for slightly more than they would have otherwise, and maybe the customer will buy something else while they're there.
So then the daily deals sites become a clearinghouse for stuff that suppliers can't sell elsewhere, and that cheapens the daily deal site in the eyes of its market. (Woot.)
I think a better, more reasonable model would be an "irregular deals" site -- a site that waited until they got some really amazing offer from a supplier, and then blasted that out to this huge network they built up. Because it's irregular, they'd get more of the market purchasing each time, and because the deal site is focusing exclusively on high quality offers, they'd be able to build up a much larger, more committed market.
I think for the most part daily deals were a macro- experiment. Everyone jumped on board - startups, businesses of all shape and sizes, as well as end-customers with high hopes everyone would win.
I think what were finding out through the experiment is that it just isn't really sustainable for much of anyone. I dont know if that segment will be disappearing anytime soon but the model will have to adapt.
I agree and I think it is an important insight. Why did everyone jump onto this thing?
My intuition is that the turbulence in media, from mp3 players to PVRs to online newspapers to Netflix and other on-demand video experiences has seriously damaged the way in which small business would "talk" to their potential customers. This is a gaping hole that has yet to be well served.
So I wonder if the macro experiment was that something like Groupon would replace it those other forms of outreach.
I think small businesses have always been hungry for more customers, so I believe the dynamic is something slightly different.
I think the Groupon space was basically a big many-sided bubble. Consumers loved the discounts and the urgency of it. Businesses loved the pitch, and the big response was spectacular compared with regular coupons. Investors loved the large user bases and the crazy growth. Groupon loved the high margins and the ability to make the books look great. And media had some great stories to sell.
But I don't think there was much real value there. Many businesses didn't really see long-term benefit from running daily deals. The traffic was large, but fickle.
The only reason this got so big was that Groupon deals had relatively long feedback loops, so it took businesses a while to learn that there were better marketing options. And there were plenty of businesses for Groupon's massive sales team to burn through before their reputation started to wear thin.
> So I wonder if the macro experiment was that something like Groupon would replace it those other forms of outreach.
It's flawed as an experiment in reaching people through new media because the price points are unsustainable. If you're offering a product or service that's at least marginally interesting at 70% off as a reward for booking through a certain channel, then some portion of the population is going to book through that channel no matter how cumbersome it is.
In other words, if the deal is compelling enough, the channel doesn't really matter.
What we're seeing is small businesses wising up to the fact that no, they're not going to get enough increased sales to account for the loss leading groupon. So they're moving back to the traditional 10-20% off 'deals', and the deal sites are taking a bath in the process.
They all fed off of the same positive network effects of the social networks, without the consistency.
I know within my own network, they were cool for a while because you got some great deals if you all worked together and shared the deals with others... but after a while, it just turns into spamming your friends, and the deals were getting less and less attractive and rare.
Here's why things are headed downwards - There are way more reasons as well, but these are the most significant:
1) Victim of its own success. Groupon, LS expanded way soon, way fast. Daily deal sites start popping around all over the place creating chaos and irritation for both the merchants and the customers (merchants bcos the same merchant gets solicited by 10 diff daily deal sites - customer bcos now you're unsure which site has the best deal and too much email)
2) The last part of (1) above can be listed as merchant and customer fatigue.
3) Its uneconomical to hire and retain salespeople in big cities like Chicago/DC etc. For this model to work, the sales team should be in a extremely low cost area. Sales team will be one of the biggest expense for such a company/startup
4) Groupon / LS are not proving effective ROI to merchants
5) Novelty factor has worn off -- making it difficult to keep customers engaged. Now, the customer is engaged only if its an awesome deal from an awesome merchant. For the remaining merchants, the purchase pattern is more driven by 'need' -- not so much impulse any more. For eg: Meh - I need to get oil change done. Might as well check on Grpn/LS to see if there's a deal being offered.
It's not profitable for the customers (mostly small businesses). They take big losses for the events and don't acquire repeat business. The consumers who partake are only doing it for the deal.
Maybe for some businesses it's not profitable, but it could be fantastic for places like a restaurant.
Every time I buy a groupon for a restaurant it's one I haven't been to before. It's never enough to pay for more than 1 meal and I don't really ever go alone. I usually buy a drink, soft or alcoholic, they're high margin. If I like the food it's on my list of places that I'll go back to. If I don't like the food, they still made some profit.
I think the problem is that these daily deal companies scaled way too fast. Instead of getting profitable in one city and growing, they tried to go nationwide and hired gigantic sales teams. Then, to make quick money they started selling terrible products and people lost interest.
I don't think you're the norm. I've read several articles where small business owners say that most people only come for the deal, get nothing else, and don't come back. It's a similar mentality that couponers have.
