Could this be the death of daily deals as we know it? This week we heard news that not one, but two daily deal giants are facing serious financial trouble. On Wednesday media outlets reported that DC based Living Social was expected to cut 400 jobs from their US operations. This comes at a time when Groupon’s board of directors is looking to fire their CEO, Andrew Mason. Both companies have seen a quick rise to prominence followed but a subsequent fall from grace. Over the past year the daily deal giants have suffered financial losses that threaten to shut down operations.
Daily deal companies have become very popular in the last few years promoting products and services at a dramatic discount through a convenient medium for tech savvy deal seekers. With many small businesses struggling to compete with larger brands, many have turned to daily deals to increase traffic to their stores. Here at Media Works we collaborated with CBS Offers for a promotion for our client, Jiffy Lube MD. As a result we saw increased downloads of coupons and increased awareness of the brand.
Other companies have begun to question how effective these deals are at promoting a brand and generating repeat consumers. The answer to whether “grouponing” works for your company really depends on the type of service you are providing and how you plan to take advantage of re-targeting these consumers.
These sorts of companies offer a large variety of deals for their subscribers across many different industries. While this is an opportunity to reach potential consumers, many businesses struggle with turning these potential consumers in to repeat consumers. Most daily deals require that products are discounted at 50% and then there is an administrative fee factored in, so in reality these products are really going for 30% of retail price. American Apparel recently sold 133,000 $50 gift cards for $25 but predict that this will generate more than an additional 6 figures in revenue due to re-targeting efforts made possible by obtaining new email addresses. Consumers who purchased these deals spent $70 on average during this visit. Companies must be able to up-sell and re-target these consumers in order to make discounts of up to 70% or more to be profitable.
Another thing a business must look at before deciding if “grouponing” is for them, is to look at who these deals are targeting. Reaching consumers who are looking for low cost products and services may not work for high end, expensive brands. For this reason many businesses have decide to shy away from the daily deal model.
In the end, it remains to be seen if these daily deal sites will outlast the fluctuating demands of consumers. In the next couple of weeks we’ll see just how Groupon and Living Social will respond to the latest news. In the meantime you can always count on getting your deals the old fashioned way with coupons.