Sites like Groupon and LivingSocial are a dime a dozen. Daily, each one offers multiple somewhat not attractive, largely-discounted offers. While these services were intriguing at first, their also daily emails have earned themselves instant “move-to-trash” clicks from my inbox. Because small businesses are finally catching on and realizing that daily deal sites will most likely not boost profit, I’m predicting that the age and reign of deal-shopping is coming to an end.
What’s wrong?
For those who are also signed up for the services, you’ll probably understand why I’m getting sick of these sites. Many of the daily deals just are not that great. Every day, offers like three-hour cooking classes, orchestra tickets, horseback riding lessons, LASIK eye surgery discounts, and weekend getaways to a cabin in the middle of nowhere are available. Yes, a few of these offers will be attractive for some people; but, in my experience, most people will be uninterested in a majority of the deals.
These sites also consistently offer coupons for local restaurants. This provides a good example of what lesson small businesses are learning.
The problem:
Restaurant deals usually feature a discount of at least 50% and are, thus, much more attractive and purchased more often. For example, on Groupon this morning I could purchase $15 worth of food and drink for $7 at a local diner, which is a 53% discount. While this is an awesome savings for the customer, businesses are often unaware of the total amount they are about to lose.
To explain, in the last example, the restaurant was automatically forfeiting $8. But, it gets worse: Groupon then takes 50% of the $7 revenue. So, in the end, the restaurant is only earning $3.50 for every $15 of food and drinks they are serving. This is multiplied by every Groupon redeemed, which if not limited, could reach the thousands depending on what the deal is. It is unlikely that this $3.50 will cover the labor, materials, utilities, and rent that are needed to keep the business running.
When small businesses should be running for the hills, they instead are seeing these daily deal sites as a good marketing ploy. It is definitely a great way to get the name of your business to the masses, but it may not be such an effective way to gain repeat customers. It’s highly probable that most people buying the deal will be a one-time visit customer due to the discount.
The future:
As small businesses are starting to realize and, unfortunately, experience the pitfalls of daily deal sites, they will be extremely reluctant to create deals for their business. Businesses seeking out these daily deal services need to do the math beforehand to make sure they will come out ahead.
It seems odd after spelling out all the problems with these sites that their popularity has skyrocketed. In fact, Groupon is discussing an IPO that could value the company up to $25 billion. Google has also dipped its toes in the market and will soon rollout Google Offers nationally.
On the other hand, Facebook, with over 750 million members worldwide, has already thrown in the towel and is abandoning Facebook Deals after only four months. I would not be surprised to see Facebook’s desertion as a sign of the end for daily deals.
What do you think about daily deal sites? Are they here to stay?
About the Author: August Drilling works in the marketing department at CliqStudios.com, the online supplier of kitchen cabinets, and is a blogger, social media enthusiast, and Apple aficionado. You can follow him on Twitter @ardrilling and hear his odd musings and insight.
