Are “Daily Deals” sites a sign of doom?

Groupon, Living Social – bad for business?

Interesting turn of events in 2011. What seemed to be the “next big thing,” the daily deals tsunami in a way, is turning out to be a big bust as signs of fizzling out are popping up.

Groupon withholds IPO

“Deal Fatigue” articles appear

Only appealing to desperate businesses? A sign of things to come?

A new way of “marketing” with no upside potential?

Some Hoboken businesses I’ve spoken with, said that these deal sites are nothing more than a different way to market their business. Comparing it to a newspaper advertisement on page 23 that maybe 100 people will actually read – many Hoboken businesses think of the Groupons and Living Socials as the same – but with up-front cash. They get to quantify the effectiveness of the promotion almost immediately. So they agree to the harsh terms of the contracts these coupon-sharks force people to sign.

However – Hoboken411 sees it differently.

Daily Deal sites are 100% LOSSES for most businesses. Good for customers, bad for business. As an owner, you get 25% (or less) of what you’d normally charge 100% for. And there are only TWO potential positives. Cash flow, and hopefully “repeat customers.”

From the research I’ve done – here are some bullet point observations:

  • The Daily Deal sites have cunning sales people with a perfected pitch, glossy marketing, and pie in the sky promises and testimonials. They pummel business owners with every psychological trick in the book. From “your competitor did this or that…” to “you’ll get repeat customers…” What they do not tell businesses is, that not only are you selling your food, product or service at 50% off – but the deal site gets half of that as well. In other words, unless you sell a service with little to no overhead, each transaction is at best break-even – or at worst, an enormous loss and headache.
  • Some businesses do it purely for short-term cash-flow. One actual positive of the deal sites is that the businesses get paid before the customer cashes in the coupon. This is great for shops that are low on funds, need capital for other things, and so on. However, as the coupons get cashed in – the business loses every single time after they’ve been paid. I’ve also heard that companies that are certain to go out of business might do it at the very end to get some dough before they close their doors. Very sneaky.
  • The “repeat customer” pitch is not working for most. Another problem with deal sites is that they are available to everyone. Including your “regulars.” So that means – that a customer who is very happy with paying full price, will buy the money-losing deal in order to save money. You just lost 75% of that customer’s money. You now need four daily deal customers for every regular that cashes in on the deal. Not an uplifting prospect.
  • Daily Deal sites are “15 minutes of fame” – and not good for the long-term. How good is a “one day deal” for brand recognition? When your deal is done, it’s “on to the next El Cheapo deal” for most of these customers. You are “OVER” once your deal has expired.
  • “Deal Whores” – This Daily Deal phenomenon has created an entire new class of customers – those who ONLY shop daily deals. They have no allegiance to honest, hard working local businesses, nope. They just want the “satisfaction” of getting something from you for less than YOU paid. These customers have zero idea that the cost of a product isn’t just what you paid for it – but it’s overhead, employee costs, insurance, utilities, theft, and much more. These deal sites have begun to re-program individuals into thinking everything is worth less.

If a business is honestly good – it will (or should) survive

There are really only a few factors to how and why a business should thrive and survive especially in this economy.

  1. Demand: You sell something people need (or honestly want without psychological manipulation and marketing).
  2. Value: You offer a quality product at a fair price.
  3. Experience: Positive for your customer.

Naturally, not everyone is practical – and they buy things they don’t need, or “think” they need based on social trends, influences and commercial mind-melding.

But if the economy continues tanking, I have a feeling even these daily deal sites will be considered luxuries to some shoppers, because it’ll start sinking in that paying a dollar for something you don’t really need is still a waste of a dollar – even if it’s a “90% Off!” deal.

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1 Comment on "Are “Daily Deals” sites a sign of doom?"

pollcatfactor
Member
pollcatfactor

That is something that the consumer doesn’t realize. Most of the deals are for things they wouldn’t buy anyway but because it’s cheap… yea why not. I don’t need picture frames, but look at this deal! No, wrong way to think. Bad consumer.

The exception being the food. I’m going to go out to eat anyway, so why not find a deal. Same reason I use restaurant.com (for discount gift cards).

But if you and I know that it works this way… why don’t the companies using deal services realize it? They have to truly believe they can get repeat customers.

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