Why Daily Deals aren't all bad (No, really)

By Patrick Dillon , written on February 8, 2013

From The News Desk

The last 12 months have been some of the most volatile times in the daily deals space. In 2010, Forbes hailed Groupon as the fastest growing company ever. Two years later, at a $3.6 billion valuation, it’s half the value of what Google was willing to pay for it before it went public. Now, some critics, Forbes included, are calling for Andrew Mason to be removed or step down as CEO.

Groupon’s struggles aren’t isolated. Living Social has struggled to attain profitability and in November slashed 400 jobs trying to do so. There’s even been a shakeout with the white label daily deal software providers, the vendors that help media and others develop the long tail of the deal industry. Two years ago, there were 15-20 providers, including most notably Analog Analytics, Deal Current Network, Deal Pigg, Group Commerce, Nimble Commerce, and Tippr, providing software to local TV, Radio, and Newspaper groups in the daily deal space. At the end of 2012, there were only a couple top providers operating profitably and gaining market share. The rest have closed down, stopped accepting new clients, or diverted resources to new projects.

However, merchants are still in search for a low-cost way to reward regular customers for their purchases. So what should publishers and merchants be focused on in 2013?

1. Marketing fewer deals with higher quality. Daily deals continue to work for some, but not all merchants. In one sample of a major TV deal program in San Diego, 43 percent of the total annual deal sales came from just 25 deals, or about one tenth of the total deals ran that year by that publisher. Deal programs should focus on working with the right type of merchants, not all merchants.

2. Picking the right loyalty program. Many companies are trying to figure out what’s next after an initial new customer is introduced to a local business. Older organizations in this space like Rewards Network/iDine, are seeing a new wave of competitors with some major venture backing. Companies like BellyMogl, andLevel Up are putting a heavier focus on making things fun and easy for consumers and simple for merchants to track. The trick that loyalty concepts will need to prove is that their programs bring in new incremental business, not just deal seekers, and are not just garnishing a percentage of revenue from existing customers.

3. Trading advertising for services and products. The daily deal industry started long before Groupon, but back in the 90’s and early 2000s it was a booming trade business. Merchants would trade their products and services for a no-cash required media trade.  For example, Jim gives his local radio station fifty $100 gift cards in exchange for $5,000 in advertising credit on air. The radio station turns around and sells those gift cards at a discount and recoups the free air time given. It’s a win-win for everybody (merchant, radio station, and consumer who gets a great discount.) This brings more perceived value to the local merchant because Jim now gets an email blast and $5k in air time.

4. Competing with banks? How financial institutions affect the local offer market will be seen in 2013. Last June the daily deal white label Analog Analytics was purchased by Barclays Group, and JP Morgan Chase just announced the acquisition of Bloomspot.  Other financial institutions are sure to follow. These organizations see this as a consumer benefit and won’t need to be profitable as a stand-alone business. Some banks, like Bank of America with their AmeriDeals program are starting to go after this market on their own.

5. Investing in digital coupons. Google Adwords and Facebook’s advertising platforms work great for the large and savvy merchant. Local merchants are still in search of an advertising outlet that costs nothing upfront and only costs money when customers take action., Coupon Cabin, and Retail Me Not have proven that performance based digital coupons work at the national level and Emarketer reported that 92.5 million people redeemed a digital coupon in 2013. We expect local merchants will start searching and requesting a similar marketing channel in 2013 and beyond.

[100% scientifically accurate chart by Hallie Bateman]