Way back in 2009 (ancient history in the digital world), Daily Deals providers such as Groupon and LivingSocial sprouted up on the digital landscape like weeds on an untended lawn. In the beginning, they were all the rage. Consumers welcomed them. Social pundits loved them. And local restaurants and retailers saw them as a great way to affordably bring in new customers. Some pundits even proclaimed Groupon to be “the next eBay.”
Here some three-plus years later, things aren’t looking so sanguine for them. So much so, that Groupon sacked its Founder and CEO due to its listless financials. (His legendary farewell letter to staff is worth reading, and can be found here.) And another pioneer of the Daily Deal, LivingSocial (the #2 player in the industry), is rumored to soon be sucked up by a larger company or get the plug pulled on it altogether as early as next year.
So how did the major Daily Dealers go from being the fair-haired child to the ugly stepsister in just a few years? A few factors conspired to hamper these firms:
- The market became highly fragmented. Every locality in the country seemed to have sprouted its own Daily Deal services, and a lot of these focused on narrow niches. Plus a lot of offline providers jumped in as well (television stations and newspapers, as an example). The national players haven’t done enough to differentiate themselves from the local competition.
- A lot of meat-and-potatoes businesses became disenchanted with participating. Groupon, et al, took a massive cut of the Daily Deals purchases. So often participants had to settle for a few crumbs from the paid voucher amount, sometimes not even covering their costs. While some participants had fantastic experiences with Daily Deals, many others didn’t. After a while, you could see which businesses would benefit, and which wouldn’t. But sadly, Groupon, LivingSocial and company treated business owners like pigeons, and took all takers instead of focusing on businesses their services could really help.
- The Daily Deal offerings are all over the map. Here’s an example: my kids are teenagers. So why did I received offerings more applicable to young families (such as a diaper service)? A few of those, and you can’t blame consumers for questioning the services’ relevance.
- The market turned out to not be as large as was originally projected. Annual growth has been around 3%, which in the digital realm is beyond stagnant.
So is there any saving the major Daily Deals players? Heck yeah. But there are a few adjustments they’ll need to make:
- Provide more relevant offers, and get involved in after-the-sale follow-up. Get to know customers’ interests better. Look at purchase patterns. Look at price points. If need be, send out surveys and questionnaires in return for “Groupon Bucks.” Learn from every purchase, and follow up with purchasers to have them evaluate their purchases.
- Focus especially on the highest value users. Twenty percent of the Daily Deal audience accounts for 80% of the sales. So do whatever it takes to cater to this group and build loyalty and evangelism among them. Create a rewards program that provides points for every purchase that can be redeemed for vouchers. Provide amazing exclusive deals that can only be “unlocked” by users once they reach a certain level. Create events specifically for this group of buyers.
- Mend fences with the local business communities. The feedback from the original model is pretty clear. Do more to partner with local businesses to make sure they succeed, give them tools to get the most out of their offerings, and don’t take a powder on them once their check are cashed.
Simply stated, the main problem with Groupon and LivingSocial is that they are more focused on being profitable than being relevant. For them to survive, that has to change.
Posted by Mickey
