Groupon, Living Social and hundreds of copycat daily deal sites continue to proliferate but their long-term effectiveness for business owners is seriously in doubt.
Recent studies say that the daily deal customer is someone who is looking for a deal and is unlikely to be a repeat customer. Those that are repeat customers tend to be customers of the business prior to the deal being offered.
More troubling is that by offering deals through services like Groupon, businesses are unwittingly devaluing their products and services. Meanwhile, their competitors, to be able to match on price, tend to do the same, thereby hurting the bottom-line.
What is also lost in the shuffle is the actual cost of the deal to the business. Most businesses only think about the fees they have to pay to offer the deal but they are forgetting that they have to discount their product or service in addition to paying the fees. Some barely break even and in some cases, they even take a loss. Most know that going in, but hope that what they lose in a sale will be made up by new customers. Read more about it here:
Businesses that offer a deal that’s too good to be true often find themselves taking a massive loss. About a year ago, a bakery offered such a deal and had to file for bankruptcy because 8,000 people took them up on the deal and their loss was so great that they had to close their doors. Read about it here:
Unlike other forms of marketing, daily deals are a one-time shot. Once the deal is offered and over, there is no further marketing potential from it unless a business captures contact information from those who take the deal and stays in touch with them, or does another deal.
Of course, there are deals that are successful. For example, if someone holds an aerobics class and needs to fill the class, a deal might be a good way to do it since the cost of the instructor is set whether there are 3 people in the class or 20. But even with a deal like this, it is important to structure it so that it is for new customers only and there is a limit to the number of people who can accept the deal. Otherwise, a business could be left with 100 people signed up for a great deal on aerobics classes, and being forced to hire additional instructors, all to just break even.