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Why Daily Deal Sites are Doomed

Unsatisfied small business owners are abandoning daily deal sites such as Groupon, LivingSocial, Travelzoo and BuyWithMe and won’t return in sufficient numbers to sustain such sites long term.   That’s one key take-away from the most exhaustive study yet done on the daily deals phenomenon. The study by Rice University business school professor Utpal Dholakia –probably the nation’s top expert on this topic – analyzed the performance of daily deals offered through five major deal sites in 23 U.S. markets. The study examined the results that businesses achieved on deals offered over an 18-month period ending in March 2011.

Overall, the picture isn’t pretty.  Most small businesses that have been making discount offers on Groupon, LivingSocial and other sites either don’t track the actual financial results of their offer, or have a distorted view of what’s really happening. Results from three Rice University studies and some 500 businesses surveyed show that most offers are not producing anything close to the financial successes for participating small businesses that a few claim to be having.  In short, daily deal sites may in fact be doomed.  

As small business owners look closer at the bottom line results of offering deep discount deals online, two things will happen:  1) the daily deal websites will have trouble attracting enough local businesses to fill their deal pipeline; and 2) business owners will be able to demand a higher revenue share, lower fees and more services.

If your business has made or considered a deep discount offer on Groupon, LivingSocial or any of the hundred or so copy-cat sites that have sprung up, first consider why many small businesses aren’t coming back.  Some of the study’s findings seem rather positive.  While 27% of businesses said they lost money, and 18% broke even, 55% said they made money.  About 80% of deal buyers are new customers (a good thing); and a stunning 1-in-5 consumers who buy a deal never redeem the voucher they’ve already paid for.  While this may actually be the primary way many businesses are turning a profit on their offers, it’s not much of a business model.

As BizBest recently wrote (see:  How to Create a Profitable Coupon Offer), crafting a discount deal that actually benefits your business long term is tricky. Most small businesses don’t get it right.  And the Rice University study uncovered a number of troubling red flags that point to structural weaknesses in the daily deals business model in general.  For example, two big things that local businesses bank on when deciding to offer a discount via Groupon or elsewhere are:

1)      That deal buyers will spend at least a little money beyond the deal value itself; and,

2)      That a goodly portion of the deal buyer customers will return at some point for a full price purchase.

But things aren’t working out that way on either count.  According to the research, just 1-in-3 buyers (35.9%) spends anything beyond the basis discount deal price. Even worse, fewer than 1-in-5 (19.9%) return later to make a full-price purchase.

Salons, spas, bars and restaurants – the bread-and-butter businesses for Groupon – seem particularly disillusioned with offering online daily deals.  Only 35.9 percent of bar and restaurant owners said they’d do it again, while 41.5% of salon owners would run another such promotion in the future.

If you do plan to proceed with a daily deal offer, here is BizBest’s advice on making it work:

  • To increase your chances of a profitable promotion, consider offering a daily deal of relatively high face value (say, $50 or more) with a shallow discount (at most 25% off face value), a short redemption period (90 days or less), and a limit on the number of deal vouchers consumers can buy.
  • Among industries, health care, professional services and special events have been the most successful at using daily deals; more than 70% of them made money on the promotion. However, two of the largest industries – restaurants/bars and salons/spas – don’t perform as well. Only 43.6% of restaurants surveyed earned a profit from the daily deal promotion, while 53.7% of salons and spas made money.  
  • Most importantly, don’t cut your other advertising and marketing spending to do daily deals. “Many local businesses that are spending their marketing dollars on daily deal sites have dramatically cut their advertising budgets,” Dholakia says. “This is a problem because they’re not building their brand when they offer discounted prices for their products and services. Only about 20% of customers using daily deals return to businesses to buy at full price, but customers acquired through other programs typically have much higher rates of full-price repurchases.”

Copyright © 2000-2011 BizBest® Media Corp.  All Rights Reserved.

B2B Daily Deal Sites for Small Business

Times have never been better for small business owners and startup entrepreneurs looking for deep discounts of up to 70% on the products and services they need to run their businesses day to day. A bevy of B2B daily and weekly deal sites have emerged, offering big discounts on everything from printing, food services and web development, to online surveys, computers, travel and office furniture.  They include RapidBuyr, BizDeals, BizSaves, Bizy, GroupPrice and MarketSharing.  Some are still in startup mode and aren’t yet operating in a large number of cities, but more cities are being added almost weekly.

Here’s BizBest’s roundup of six key players (in no particular order):

RapidBuyr is a business-to-business (B2B) deal of the day site that offers daily deals — both local and national— for small and mid-sized businesses (SMBs).  The site provides access to deep discounts (30-70%) on products and services such as computers, software, peripherals, web development & design, IT outsourcing, marketing, local services, office furniture and equipment, travel and business events. The site was launched by a group of entrepreneurs formerly with firms such as, Microsoft, CNET, Dow Jones and Ziff Davis. One thing that sets RapidBuyr apart is its exclusive relationship with American City Business Journals. ACBJ is the largest publisher of metropolitan business newsweeklies in the United States, and has over 40 city and regional business journals nationwide. This strategic partnership gives RapidBuyr an edge over other B2B deal sites, and allows them to reach nearly 8 million monthly visitors to 40 regional business journal websites.

BizDeals calls itself a “social eCommerce” site offering deals on products and services that help small business owners generate brand awareness and drive growth. Its weekly deals deliver savings on products and services in the categories of Business Essentials, Business Growth, and Rewards & Recognition.  From marketing services and computer products, to travel deals and entertainment, these categories include key areas where savings can do business owners the most good.  One example:  PR Newswire, a BizDeals launch sponsor, offers discounts on its enhanced PR Toolkit, an online public relations resource tailored to small business and entrepreneurs. 

Chicago-based Bizy helps small business owners buy a wide array of products and services at deep discounts, including office equipment and supplies, IT network equipment, software and hardware, mobile communications devices, shipping, payroll services, legal and accounting services, travel, car rental, banking, credit cards, insurance and more. It works like this:

  • Sign up to receive an email when there is a new and interesting Bizy deal, or look for invites from friends, colleagues, ads or the website.
  • When you see an offer you like, you can click the big “buy now” button.
  • Some deals only work if a minimum number of businesses buy.
  • Within 24 hours you’ll receive a purchase confirmation.  Print it and take it with you to the supplier or quote the reference number featured in the email to redeem your offer.

BizSaves bargains on behalf of business owners for deals on products and services that small companies and startups need most, with discounts reaching 50% or more. Sign up at the website to receive email notices of new deals weekly.

GroupPrice “Daily Deals for Your Business” brings small biz owners discount deals on services, software and supplies, including access to top end features on the software and services many small firms can’t get because they don’t meet minimum volume requirements. GroupPrice aims to take the hassle and stress out of getting a good deal. A couple of clicks and you’re done.

Meanwhile, MarketSharing hopes to position itself as a “premium B2B deals provider for exceptional business products and services.”  Initial deals are in New York only, but the site plans to expand to other major U.S. cities quickly.  Their first three daily deals include discounts on SeamlessWeb food delivery, BlogWorld and New Media Expo passes and TeamWorx team building events.

MarketSharing aims to offer businesses high quality, deeply discounted (50-80%) daily group deals on a wide range of products and. With an emphasis on brick and mortar to support local businesses, MarketSharing focuses on curating the best local products and service deals for businesses.  “Our vision is to provide deals that foster the discovery of new experiences for businesses, creating a happier, healthier, and more well rounded work environment,” says John Amato, MarketSharing’s CEO.

Copyright © 2000-2011 BizBest® Media Corp.  All Rights Reserved.