This article was originally published at the Daily Blogma (www.dailyblogma.com
Consumers Win – Sellers Lose
July 04, 2011
By now, the voices are loud in the market place; Groupon® and its imitators are making some noise. Sites like Living Social, Groupon, and a host of other Deal of the Day vendors are all making a splash in the media, both financially and otherwise; but at whose expense?
There’s no doubt the Deal of the Day offerings by hoards of “me too” sites is a win for the consumer; those hell bent on getting a whale of a deal. As I have written in the past, the jury is still out on if any of these outfits will survive once the business climate improves. Right now, most struggling small businesses are searching for that panacea that will catapult them out of the doldrums and into black ink once again. Just remember this:
“A drowning man will even grasp at the blade of a sword.” What may seem like a good idea may turn out to be otherwise.
Amazon purchased Living Social this past year, and according to Compete®, Groupon turned down a $6 Billion (that’s with a “B”) purchase offer from Google this past December. Recently filing an IPO notice a month or so ago, they have not seen this much negativity since they came on the scene. You see it everywhere, yet small shop owners clamor for the entity to help them with their customer acquisition. BIA Kelsey, the local media and advertising experts, predicts growth in the Deal of the Day market place to exceed $3.5 Billion by the year 2015. How can that be you say? Well, as P.T. Barnum once said, “There’s a sucker born every day!”
While consumers continue to win at the hands of Deals, where is the loyalty? Unless shopkeepers want to “run a going out of business sale” (what I call it when you operate at break even or at a loss), consumers will move on to the next good Deal of the Day.
The concept is an easy “Me Too” style of offering, with new Deal sites popping up all the time. You can get a Deal by watching Wheel of Fortune, with their Wheel Deals site, and who knows what other sites all over the globe. It’s too easy to imitate, and in time will become a diluted concept, in this writer’s opinion. Companies continue to embrace them, despite the overwhelming disadvantage to doing business in that fashion.
The true cost of doing business with Deal of the Day vendors is troublesome for the small to medium shopkeeper. Customers shop for deep discounts, good economy or bad. Any small retailer might be able to run a break even or small loss offering once, but not too many more than one. It simply makes little sense, especially when the consumers are so fickle.
For the uninitiated, the typical deal breaks down like this:
- Deals to the consumers must be at least 50% off retail
- Deal of the Day vendor takes anywhere from 15% – 35% of the sales total
- There is no reimbursement for cost of goods sold at break even or loss
You can see how difficult it is to make a buck on such a deal. Consumers Win – Sellers Lose.
MY ADVICE: Develop a preferred customer program, treat your existing customer base to good value at fair prices, and reward them for your loyalty. Their referrals will grow your customer base, along with good products and services. If you must try a Deal of the Day, combine it with significant marketing to “Join our VIP Club or some other loyalty based theme. A simple mobile marketing campaign combined with the influx of deal shoppers may help with follow up marketing and repeat business at higher margins.
Here’s some background articles for additional information.
- Too Much of a Good Thing http://www.huffingtonpost.com/2010/10/25
- Groupon in Retrospect http://posiescafe.com/wp/?p=316
- Doing the Math on a Groupon Deal? via New York Times
Have a GREAT Marketing Day!
David J Dunworth is an internationally acclaimed author and presenter on the subjects of business, focusing on the entrepreneurs and emerging enterprise arenas. He is the CEO of TeXT-Icon Mobile Marketing Communications (www.text-icon.com), an international text and video communications firm offering affordable and bleeding edge technologies for marketing.
You can read his blog by visiting: