Deal-A-Day – Should You Do It?

Editor Note: Facebook Deals is no longer active as of 2011. 

During sometime after the invention of the internet and the founding of Facebook there came along a little company that would go on to become the “fastest growing company of all-time.”  That company’s name is Groupon and it changing life for customers and business owners.

A long time ago (3 years), you have to stand outside your favorite store and wait for 10 of your newly found “friends” to join forces and then you possessed the super-power known as “bargaining power.”  With this power, customers could create their own deals purely through the sheer number of “friends” who were interested in purchasing.

Now, with sites like Groupon, LivingSocial and Tipper, it is no longer a requirement to have a long list of “friends.” Instead customers can just purchase an offer that the Deal-A-Day Sites. These companies connect you with your new “friends” and they also negotiate with merchants on your behalf.  This results in 50% or more off of regular price. These companies use their large audiences and blast out these deals to their networks.  People that don’t know each other from Adam or Eve are brought together for the sake of saving money.

Here’s the kicker: these Deal-A-Day Sites keep half of the revenue, so merchants really obtain sometimes around 25% of what they would have if they sold their products or services at regular price. However, they have access to huge networks of potential customers for their products and services.

Welcome to the Future

Because the industry is so new, Julie Mossler of Groupon says that customers are changing the way they get deals.  Rather than receiving the deal in the inbox, customers walking down the street want to find out what deals are available according to their location. Through mobile applications like Groupon Now and LivingSocial’s Instant Deals customers can do that.  Mossler explains that the businesses that participate are usually already busy and want to fill an extra table during lunch time so that can get rid of inventory.

Ahluwalia Harpreet from Citysearch estimates that there are about 200 Deal-A-Day Sites at different levels. There are sites that targeting everything from dog lovers or a site for golfers.  This has happened because the business model is not hard to replicate.

According to a survey completed by Citysearch of 2,000 customers they found that 80% of the people surveyed had purchased a deal within the last 6 months.  The survey also found that customers were more loyal to the deal then they were to the brand. This is because customers are getting bombarded with so many deals from so many different sites.  Citysearch also found that customers also research the business before they buy a daily deal.  Citysearch and a few other companies including Yahoo have created aggregators of all these daily deals based on category and location.  In addition, the customers can find ratings for the merchants before they buy.  Harpreet explains it is “the Kayak [popular application for travelers] of daily deals”.

So Should You Do It?

Whether or not you should participate with these deal-a-day sites depends on who you speak with.  Companies like Groupon put best practices and information together to help businesses determine if the deal is right for them.   Bola Ajumobi of the Slimy Bookworms has tried multiple sites and had good and bad experience with each. She feels that the “novelty of the daily deals is going to wane with time” so for the customers that use these deals she “works to please and impress them enough for repeat business.”  Ajumobi also uses the runs to build her mailing list.  Companies like Geja’s Fondue Restaurant in Chicago have stuck with Groupon having run six deals each doing well.

Pros

Harpreet believes that there can certainly benefits if you can take those new customers and convert them to long-term customers.

• Huge brand exposure from being featured in sites with millions in their network
• If you can provide a great experience, so that customers come back it can provide a big ROI
• You get cash up front. Customers pre-pay and if business can figure out a way to schedule customers and stagger their demand they won’t be overwhelmed

Cons

According to Richard Harmer of the Brady Media Group, these Deal-A-Day sites don’t provide “brand equity” because the Deal-A-Day Sites require “price haggling in the front-end.”  Brand equity refers to the marketing effects and outcomes that accrue to a product with its brand name compared with those that would accrue if the same product did not have the brand name.

• Merchants can be overwhelmed by the demand they get from these deals if they aren’t prepared
• Harmer believes that this is a temporary solution and nothing is gained in the long-term
• Harmer says that customers are participating in price shopping

Did Someone Say Google & Facebook?

The SEO giant that was spurned by Groupon recently launched their own deal-a-day site in select cities called Google Offers.  Harmer says it will be interesting to see how Google competes because companies like Groupon already have the local sales force in place that are calling merchants on a daily basis. Google doesn’t necessarily have that sales force.  Also Harmer explained that sites like Groupon have a huge staff of people writing well-written descriptions and taking great pictures.

Facebook Deals is currently available in Atlanta, Austin, Dallas, San Diego and San Francisco and integrates with Facebook Fan Pages as well as groups.  With so many active users (over 500 million according to Facebook.com) this is going to be an interesting battle.

Image: Simon Howden / FreeDigitalPhotos.net