Daily Deals Market Still Has Room to Grow

Local 2.0 hasn’t even begun yet.

Groupons, as they are known, are like car phones. They will evolve into pagers, cellphones, PDAs, feature phones, smartphones, tablets, and onwards. Local online is only beginning. The real hype is that people think they know where Groupon or anyone else is headed, with so much at stake even this early on. That’s like calling a winner on the first step of the Kentucky Derby. Google just started doing daily deals. While that makes some folks shudder, consider that at one time Google was just another me-too search engine. With that in mind, which me-too Groupon could be the next Google?

 

The fact is, there’s just too much money to be made for the daily deals industry to implode. Group buying isn’t new, but it has blossomed in this new incarnation. While naysayers abound, there are too many smart people with too much to lose for this market to implode. It just needs to evolve. A few companies are leading the way, helping this industry grow up the same way it came into this world: at lightning speed.

A better deal-seeker experience: Most consumers don’t realize that daily deals companies use loss leaders — extra good deals with A+ merchants — that aren’t indicative of what they’ll get on the average day. A leading aggregator, Yipit, rates deals and minimizes noise by allowing consumers to specify interests/location so they only get stuff near them that they like. Consumers can even specify how much email they want to receive. But there should be better opt-in channels for those looking for deals. Groupon and LivingSocial have already recognized this, and have launched mobile apps that let users request deals on demand. It’s a new paradigm for both consumers and merchants, so stay tuned.

New delivery channels: Deals don’t need to be daily, or even opt-in. They can be one time, group-buying deep discounts, which means that traditional media with established audiences can run them as display ads. Publishers need partners who can help them conquer this ad unit. A great example of this is GroupCommerce, which helps merchants and publishers connect and execute campaigns, much like a traditional ad network. Getting past the email opt-in could grow the reach of these types of deals, particularly with white labelers activating traditional publishers.

Deal-creators deserve data: If merchants are going to go to all the effort of creating a disrupting marketing push by offering a daily deal, and deliver a huge spike of traffic with unclear profitability hurdles, they need as many performance metrics as possible. Surprisingly, tracking redemptions is almost always done by hand (and usually a complete disaster). Point-of-sale systems like the one Groupon is rolling out help with redemption validation and analytics. Offermatic takes it a step further by making redemption completely seamless, straight to the credit card (no coupons!). The most important piece of information that merchants can have is how many and which deal-takers actually come back, since merchants only make money when they can create repeat business.

Market pressure on the infamous cut: There is buzz that the big two are lowering the cut they take, but even more buzz to indicate this may be a sales tactic to lock in merchants with exclusives. There needs to be a more earnest, ROI-based cost structure for running a deal. One of the most interesting companies re-envisioning the revshare is Scoutmob, which runs familiar 50 percent daily deals but earns money more like OpenTable, charging per lead instead of taking a percentage of gross proceeds. They let the merchant swipe the credit card, and charge the merchant a flat per-customer fee. While their lower margins make it harder to market competitively, their users and merchants get a better deal, so it may be that their efforts to scale both sales and user base could gain traction.

Putting deal customization in the hands of merchants: How long will daily deal companies be able to keep bullying merchants about when and how they can offer deals? Merchants deserve on-demand deal delivery, as often as they want. Perry Evans, CEO of Closely, writes on his blog that often when is the most important part of discounting, and his company lets merchants experiment with deal timing. Another aspect of customization involves being able to control when customers can redeem discounts. Signpost offers not only day/week parting but also set-your-own ceilings on the total number of eligible deals, which allow merchants to focus on filling off-peak hours. Deal customization lets businesses optimize their traffic, a scary-cool idea.

Change focus to customer loyalty and lifetime value: For now, daily deals have been all about new customers. Yet all the hype in location-based services is around loyalty. There is a huge disconnect between these simultaneous hype storms. One exception is LevelUp, a daily deal service created by location-based service SCVNGR, a cross-pollination of these storms that helps merchants reward loyalty by giving customers increasingly bigger discounts for each incremental visit (up to three visits).

As the saying goes, it’s only the first inning of the daily deals games. Calling winners and losers is a fool’s errand. The market will grow, there will be twists and turns. It’s going to be fascinating to watch how it pans out.

Michael Muse is co-founder of LocalResponse, a location-based mobile marketing service.

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