A couple of years back, I heard of a company that was apparently doing really well for itself. It was a web startup that was growing so fast that it would seemingly grow faster than any business… ever. It would seemingly end up being the fastest growing business of not just web companies but of all times, of ANY and ALL BUSINESSES!
And you probably know the rest. The company was the now famed Groupon. The concept was fairly simple: send out emails to a bunch of potential consumers and get them to commit to purchasing specific goods or services at a substantial rebate from a specific merchant. Once you reach a critical mass of buyers, the economy of scale, the bulk buying, the group buying actually allows the merchant to indeed consent to such a substantial rebate. And there you have it!
It should be a win-win-win in theory. And a great one at that! The clients get a great deal, the merchant gets tons of new business and Groupon gets its share for brokering the deal. Everybody wins right? That’s what a lot of people thought for a while…
The theory behind it is interesting. Instead of spending on advertising, merchants can pass on the budget to their new clients. Invest the same money in giving them a rebate so they can try the services, get hooked and become a client. What better publicity is there but to experience the actual service or product? It’s a great theory, it really is. And it’s not a new one actually.
I was selling coupons on the streets in my late teens. It was a great sales gig. We were roaming the streets of Montreal, stopping passersby and offering them a package deal for say 20 meals at a restaurant, 10 oil changes or 3-month gym membership for 29$ or 39$ instead of say 200$ or 300$. The clients loved the idea of the merchant spending the money on them, of getting a great deal and trying something new. They were selling quite well, the company was doing well and I learned a great deal about cold calling and sales.
So what’s the problem with Groupon or its daily deals copycats you might ask? Same principle, same winning combination? I personally never felt so and time has been telling for the daily deal industry.
The whole operation is beneficial to the merchants if they obtain what they were seeking through advertising in the first place, namely clients. And it’s not really happening for many of the offers out there. A single visit to a restaurant with 70% off the check is not necessarily conducive to creating a new loyal customer. Isn’t it the responsibility of the merchants to wow the client and win them over? Certainly, but the deals are often brokered at such volumes that it makes it difficult for the business to makes this client feel special and win their business. Shouldn’t all clients feel special every time if it’s a good business in the first place? Yes, yes, they probably should. In a world class business, no doubt. But a lot of the SMEs that want to rely on daily deals to grow their business are not always perfectly on top of things. It’s hard to run a business, most businesses actually fail. Many SMBs or SMEs are short on resources of all kinds and run on a best effort principle. So sending them 50 new clients to wow on a Saturday, let’s say, might not be a winning combination…
Furthermore, the daily deals industry craze has created a slew of copycats which results in a consumer environment where we get offered daily deals left right and center. First off, clients have been getting desensitized to promotions. People will now rarely pay attention to a 5-20% off deal. In real life, that’s often all the profit there is in the transaction, it’s the business selling you their goods or services at cost. But we don’t really care for that anymore. We want 50-70% or even 90% off. Now that’s a good deal! What it means is that we actually expect businesses to pay, and pay a lot for us to use their services. And furthermore, the business is not really paying to acquire a customer (which might make sense) because the next time we need a restaurant, a spa or beauty treatment, we can just hop on to the next daily deal…
What a cancer it’s been! Most of these daily deals companies are full of good intentions. Some of them really do care about the return on investment for the business and are really trying in many different ways to make these new clients stick around. But hell is paved with good intentions. The good will of the honest daily deals companies is not enough to change the business model or the landscape and make it viable.
Moreover, if you dig a little into how these deals actually take place, you’ll find out that in many cases, the daily deal company is advancing the small or medium business up to 20+k when they sign the deal. So one of the reasons so many businesses have been flocking to the daily deals is because it’s a great way to boost their cash flow, to get a loan or a cash influx in an economy where they often have a hard time getting such cash flow. What’s the problem? Isn’t it great that these daily deals are also financing those businesses, the backbone, the heart and soul of our economy? Well, not so much apparently. Many of the businesses are desperate for the money so they will acquiesce to deals that don’t really make sense just to get the money upfront, money often needed to survive in the short term. They often choke on the deal when the negative cash flow deals start pouring in with all those clients that cost money and they sometimes even go out of business before honoring all the deals and leaving the clients stranded with their worthless coupons…
Keep Calm and Coupon
So what’s going to happen? Well, first off we’ve been seeing a consolidation of the industry which is to be expected at this stage of the game. Fewer companies will offer the daily deals which might leave the landscape a little healthier. A lot of businesses have also been burnt and won’t fall for the deal that doesn’t make sense anymore so if the market is a little wiser, it adds pressure on the daily deals operators to come up with creative ways to make the new business stick.
And there’s definitely a way to make it stick. If you think about it long and hard, spending money on the new client to win his business or on the existing one to increase is loyalty is not a bad formula. You just have to deliver an advertising solution that is consumer centric, focused on the person coming into the business and pulling all the stops to onboard them, to engage them, to give them a peak experience and make them want to come back for more. I still believe in the principle of spending directly on customers. And whoever figures out the best way to execute this proposition might actually truly establish the triple crown of advertising…