Daily deals, group-buying and coupons. Our society loves them. We even have TV shows about them. Don’t believe me, just watch TLC’s “Extreme Couponing.” (Note: This is what happens when Confessions of a Shopalcoholic meets Hoarders. They have stock piles upon stock piles of all the free uber-processed food crap and cleaning supplies they can get their hands on.)
First, coupons were just in Sunday newspapers and magazines. Then, Groupon came around. It blew up the interwebs, and made couponing attractive and fun for a younger audience. Since Groupon and Living Social can do it and have tremendous success, it has spun off a whole series of copycat sites. Don’t believe me, there are now hundreds of sites looking to get in on the Groupon business model. There are even sites that exist solely to crowdsource and organize all the deals. The daily deal site bubble has to burst eventually. Here’s three reasons why.
1. Daily deal site mass cleanse
Remember in the late 1990s, when we all thought email was the greatest thing since sliced bread? We all signed up for every email newsletter that we could get our hands on. In large part, just because of the thrill of receiving emails from our favorite companies and sites. Then, companies started taking advantage of our trust and started routinely spamming us, and asking us to buy such and such products. People became overwhelmed with the amount of emails they were receiving and they started unsubscribing. Oh yeah, gmail’s junk mail feature helped with that too.
I predict the same thing will happen with all these daily deal sites in the very near future. Right now, many people are eagerly drinking the daily deal sites’ Kool-Aid. They started innocently enough with one daily deal email. Now, they are subscribed to five sites, ten sites, perhaps even 20 sites. It’s snowballing out of control and before long many people will start filtering and unsubscribing in large numbers. With less people receiving and buying these deals, it will drive most of these copycat companies out of business.
2. Groupons are bad for small businesses.
Do you really understand Groupon’s business model? Let’s just say that most businesses aren’t making any money from these deals and in fact many are actually losing money. Groupon’s sales team approaches businesses with the allure of getting hundreds of new sales in a single day, which they do.
However, here’s the facts that Groupon doesn’t want these small business owners to know. Groupon requires businesses to discount a product by at least 50% in order to qualify. It then takes roughly 50% off the now-discounted rate, which leaves the business with 25 cents on the dollar. This doesn’t even account for the fact that most of these Groupon buyers tend to be one-time buyers. When you put this way, where is the ROI for small business owners?
Businesses would need to have thousands upon thousands of people buy their Groupon- such as the case of over a million people buying the Amazon deal on Living Social- to fully profit from these deals. The case for that happening for small businesses is slim.
3. The deals aren’t relevant.
When I first jumped on the daily deal site bandwagon in 2009, some of the deals were actually quite great. Many of them were even relevant to my interests. Now with the ridiculously high number of daily deal sites out there, these companies are just trying to get more bang for their buck. Relevancy, which made these sites attractive (especially to the 18-34 demographic) is going out the window. Instead, we are now left with an exorbitant amount of deals on all these sites for spa days, botox treatments and laser hair removal to name a few. In fact, this week alone, I got three different spa treatment deals in my inbox from Groupon NYC alone. That’s not even factoring in deals from other sites.
Now, I’m going to venture off a bit and say that most of the people, who are buying these coupons, are just going because they got a ridiculously good deal. They likely aren’t going to be very loyal and come back to that salon unless they get another really great deal. These businesses are seeing a huge spike in customers, but it’s short term. The only way they are going to see the same numbers is if they keep giving bigger discounts until they eventually drive themselves out of business.
While the Groupon model is extremely profitable now (to the tune of $800 million in annual revenue,) they are going to eventually reach a dead end. Here’s why. Small businesses (and marketers) will start to smarten up and will grow their own email lists, social media channels and websites to get their deals out to a growing audience without having to give Groupon 50% of their sales.
Do you think all these daily deal sites will disappear? Please leave your comments below.