A lot is being written these days about “Deal of the day” sites (see link below), and no doubt they’ve shown that there is a strong consumer demand for on-line deals. The market has exploded in the past year, with nearly $1 billion being spent by consumers in 2010 for deals on Groupon and Living Social alone. In some cases, it’s great business on both sides. But increasingly, stories of frustration are emerging — consumers frustrated about poor (or non) fulfillment by merchants, and merchants frustrated when they realize that they are giving away a lot of product or service for a very questionable economic return.
The reality is that offering a Deal of the Day is often not a very good deal at all for the merchants. Let’s look at the economics for a second: if a spa offers a one hour massage for $50 (retail price $100), and sells 200 of these packages, then $10,000 in revenue is generated. Groupon doesn’t publish their rates, but it’s commonly reported that they keep 50% of the revenue. This means that the spa is giving away $20,000 worth of service in exchange for $5000 — the other $5000 goes to Groupon, essentially for sending an email. That’s a pretty steep advertising bill, particularly considering it’s for the right to offer a service at a 50% discount.
In exchange for their $5000, the spa is now obligated to provide 200 hours of service, plus bear all the other costs associated with servicing customers. If they are just starting up and need exposure, perhaps this is a worthwhile investment — assuming that people will have a good experience, come back again, and pay full price. But for many merchants trying to grow their business, fulfilling on these deals loses money and crowds out good business. And unfortunately, many of the articles suggest that the bargain-shoppers who buy these deals do not often become repeat customers.
So what does all this mean? There will always be a place of “deals of the day” — but the price will come down over time as competition pushes it there, and perhaps the deals will moderate. (One way or another, merchants will have to get more for what they are offering.) But merchants will also need more “everyday” tools that will allow them to advertise through social media in a way that they control. Digital media creates the possibility create a deal in the moment, based on today’s circumstances – without waiting to get on someone else’s schedule (be it Groupon, Valpak, or the local paper). Offeretti provides that capability — a single place where participating merchants can log in, create a deal, and publish it instantly to their email list, Facebook page, website, and Offeretti’s website and mobile app, where consumers can find a comprehensive listing of deals anytime. And that $5000 a merchant will spend with Groupon — that will pay for over 8 years of service with Offeretti!
