Daily deals: Who really gets screwed over and who truly benefits?
Market research firm ForeSee Results analyzed the daily group deals space and found that a full one-third of customers buying and using the coupons are new customers. This number is well above what has been previously touted by those criticizing deal companies.
The heated debate has been raging for a while: are these group deals just providing discounts to existing customers, needlessly cutting into profits? Or do they actually generate real leads?
ForeSee's analysis demonstrates an ideal mix of who's buying the coupons: 31 percent new, 27 percent infrequent, and 4 percent former, with the leftover 38 percent being existing customers. Obviously businesses would like the latter number to be even smaller, but loyal customers are naturally going to buy the coupon—it would be terrible public relations for a company to try and offer the deal only to new customers, alienating their best clients.
Still, a question lingers: do any of these new or infrequent customers actually return? Sure, they'll come for 50 or 70 percent off. But will they be willing to pay the full price the next time around?
This largely rests on the company running the deal. It's on them to deliver a superb experience that creates a recurring customer.
But there is also a growing phenomenon in the group buying space, which is an audience-focused, niche-style business model. Described by some as "group buying 2.0," it is believed that the future of this industry will be owned by companies that can target potential customers based on quality, not quantity.
For example, consider the situation of selling a restaurant voucher on a food blog instead of Groupon or its ilk. The foodies who read the blog are more likely to care about the taste of the food, the venue's ambience, etc.—and subsequently be more likely to return. With a general audience, you get a lot of people just looking for a cheap meal who have no intention of ever coming back.
Perhaps the greatest struggle for businesses is simply how successful a deal needs to be for them to not even profit, but just break even—after Groupon takes its cut and the customer gets their discount, it's a pretty extreme loss leader to gamble on. There's a reason almost every deal is just 50 to 60 percent off (50 usually begin the minimum) and not 80 or 90 percent off (as most group buying sites claim their deals reach up to). It would be simply impossible to recover from the damage of a well-bought, 90-percent-off voucher. It would be financial suicide.
There are well over 100 group buying sites in North America and more than three dozen aggregators. And one will determine the fate of the rest. Whether Groupon's IPO is a wild success, or whether the company implodes, will be a very telling sign for the industry. Most observers believe the latter event is more likely—bubble burst, anyone?—but we won't know for certain until it happens.
My advice? Plug your ears. The pop may be a loud one.
