Open Knowledge is the analytics arm of Deals Extra.
We provide analysis on e-Commerce and in particular reports on the daily deals and discounts industry.
The media and most people think that the daily deals model is dead.
ding dong, daily deals are dead - Farhad Manjoo - Slate
daily deals are a dead end for Groupon - Joseph B. Cahill - Chicago Business
The general consensus is that consumers are getting tired of being spammed by deal newsletters, and that business owners are not getting enough repeat business to make running a deal worth while. But, let's take a look at some statistics: Statistics show strong consumer support for the daily deals model:
1. The unsubscribe rate for daily deals email list is less than half the industry - source Mail Chimp Daily Deals Study
2. Less than 4% of Groupon deals are refunded - source: Groupon Annual Report 2011
3. The daily deals market is projected to grow to $4.1bn by 2015 - source: Grail Research
Statistics show strong SMB support for daily deals model:
1. 57,000 businesses run a deal with Groupon every quarter in America alone - source Groupon S1
2. 94% of merchants are satisfied with their group buying promotions, 67% say it was "excellent" or "very good" and 50% go on to run a repeat deal - source Telsyte Research
So despite strong consumer and SMB support for the daily deals model, why has Groupon's stock price dropped to a quarter of its IPO price, and why did Living Social lose $96m last quarter?
Having worked at Groupon Australia, being responsible for affiliate and social media marketing, my perspective is that Groupon and Living Social are declining due to operational problems namely:
1. Groupon/Living Social are over paying for customer acquisition with a heavy spend on paid cost per click advertising - Groupon pays an average of $6 per subscriber, Groupon and Living Social have spent over $1bn, and $500m on advertising respectively.
2. Groupon/Living Social suffer from high overhead costs from running large sales team to source deals. There are over 6,000+ sales staff at Groupon.So to reword Mr Manjoo, and Mr Cahill. "Ding Dong, Groupon is Dead", and "Groupon is a dead end for daily deals". The daily deals model is very well alive, as seen from the statistics. It's just Groupon and Living Social haven't found an efficient and profitable way to implement the model.
So what is an efficient and profitable implementation of the daily deals model?
How do we solve the problem of high customer acquisition costs?
We can use a model like Yelp.com. Yelp receives 63 million unique visitors per month, most of these visitors are from free organic search engine traffic. Yelp encourages users to write reviews about businesses, and has produced millions of pages of user generated content, which ranks on search engines and receives traffic. Similar through encouraging user participation and contribution, the stickiness and life time of users increases.
How do we solve the problem of high overheads of a large sales team to source deals?
90% of business owners have already heard about daily deals and receive a call every week from a sales person asking them to list on a daily deals website. There isn't a need for a sales person to educate business owners about the daily deals model. Business owners only care about how much exposure their business is going to get, and how much commission they need to give away. An efficient method of deal sourcing would be through a self-service daily deals listing portal, where an automated system will dramatically reduce deal sourcing overheads and afford a lowering of commissions.
So what would this new daily deals model look like?
A portal with user generated reviews on businesses and specifically reviews about deals from businesses, monetized via a self-service daily deals listing CMS.
Which is exactly what we're working on at Deals Extra.