By Mark Armitage, SocialShopping.com
The recent proliferation of daily coupon sites online has been nothing short of phenomenal. Spearheaded by the likes of Groupon and LivingSocial, these daily deals sites have proved wildly popular both with consumers and local businesses looking to attract them to their stores.
However, the trend has not been without its critics; from bungled deals and disgruntled customers to accusations of diluting brands’ value from some business owners, it seems hardly a day passes without a new story hitting the headlines. So what are the pros and cons of the coupon site model and is it really sustainable for retailers and ultimately their customers?
Let’s take Groupon as an example.
Founded in 2008 and running their first deal in October of that year, the business has grown to offer over 50 million registered users daily offers on everything from pizzas to fitness classes in more than 250 cities worldwide. Having declined a reported acquisition offer of $6 billion from Google in November of last year, they have more recently announced that they have raised fresh investment of almost one sixth of that ($950m) from a number of high-profile backers – a remarkable show of faith in such a young company.
It’s not hard to see why daily deals sites appeal to consumers. Discounts of up to 90% represent great value, plus assuming you are subscribed to several of these services where you live, you have a considerable choice of fun activities every single day.
However, not every deal runs smoothly. A common problem experienced by retailers has been that the extra demand generated by a promotion on a site such as Groupon can be difficult to manage, which in turn has lead to dissatisfactory service and customer complaints. A recent instance of this arose in Tokyo when a local café was unable to deliver 500 orders of a traditional New Year’s meal to Groupon subscribers either on time or in satisfactory condition, leading to their CEO Andrew Mason having to issue a subtitled apology to Japanese subscribers via YouTube. When Groupon launched their biggest national deal in the US for the Gap in August of last year, the demand crashed their server.
If these mistakes are forgivable for a young company growing more rapidly than even its founders could have anticipated, there are also more fundamental problems from some retailers’ perspectives. Although Groupon’s model guarantees the company running the offer a certain number of customers per deal, by the time they have offered the initial discount for customers and paid Groupon their cut of 40-50% of the coupon’s face value, many businesses have found that the actual profitability of such deals has been well below their original expectations.
Moreover, some industry analysts have accused coupon sites of breeding a “don’t buy culture” amongst consumers. The theory goes that subscribers become so accustomed to getting everything at a discounted price that they may refuse to return to stores except when they are offering deals. Linking this back to the math which local businesses have to do when calculating how many new customers they need to bring in to generate a profit from a daily deal, it’s not hard to see why some might make the mistake of underestimating this figure and end up feeling short-changed. This is the same logic which has led many online retailers to shun voucher code sites which they see as catering only to bargain hunters as opposed to potentially loyal customers.
So what does all of this mean for the future of daily deals sites and the retail landscape as a whole?
It would be foolish of me to say that Groupon’s business is going to head south anytime soon; if figures recently quoted in The Wall Street Journal are to be believed, demand for Groupon’s services is so high that they currently have to turn down 7 out of 8 approaches from local businesses.
Sooner or later, though, I believe that there will be a backlash from some retailers who may then seek alternative solutions to bring customers into their businesses. Rather than effectively paying twice –once for the discount for customers and again for the commission to the coupon site – savvy business owners may instead seek smaller platforms which charge less or even nothing at all. Even if these other distributors do not have the same reach as Groupon, the retailers may be willing to compromise this in exchange for a better profit margin and a more predictable customer flow.
Furthermore, these same business owners may start to question how they can attract a more brand-loyal and hence, more valuable breed of customer than those who subscribe to the likes of Groupon. Online retailers with the financial resources to do so may look to introduce features such as Facebook integration which will give them access to their customers’ interests and habits. Interpreted correctly, this can then enable them to offer deals specifically targeted at these users.
For smaller or local businesses, though, this may seem a lot of work for no guarantee of success. Ultimately, what many retailers really want is the opportunity to ask consumers directly what it is that they want. This is where not just Facebook but a new generation of tailored platforms which combine social networking elements with a means to interact with self-proclaimed shopping fans may come in. And if they can do so in a controlled environment without charging prohibitive commissions – or even offer the service for free – this may hold the key to a more sustainable business model for retailers of all sizes.
Mark Armitage is Director of Marketing Communications for Socialshopping.com, a new online shopping network and community which brings together thousands of shopping fans looking for the best tips and bargains both online and whether they love. Socialshopping offers an open technology platform which allows consumers and shops alike to create pages and share information about their favorite brands and products.
For more information, visit http://www.socialshopping.com/ or contact Mark directly at mark@socialshopping.com.
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