The short answer is almost nothing. Many journalists have argued that consumers have soured on “deals” in the wake of the well-publicized struggles at Groupon and LivingSocial, which just laid off 10% of its workforce.
But it’s not true. Consumers love deals.
Deals are evergreen; just look at last weekend with Black Friday and Cyber Monday (etc.). US consumers are as deal-crazy as they ever have been. One could even argue that they are now so conditioned to look for deals, coupons and savings that most won’t buy without some incentive.
What’s changed from 2010-2011 and its daily deal mania is that consumers have grown weary of the “daily deals” style push e-mail model featuring a lot of items that aren’t particularly relevant or interesting. Once consumers have a couple of negative experiences with deals they become far more selective and are often reluctant to “go there” again.
Furthermore the well-publicized struggles of some merchants that used deals have made it more difficult for many deal purveyors to bring new merchants into the system. There’s an analogy between daily deals and social media: most small merchants don’t know how to “work” the system particularly well.
But consider this: as people are writing the epitaph for daily deals VC firm Andreessen Horowitz just pumped $85 million (yes $85 million) into “daily deals” site Zulily. Zulily could equally be characterized as a marketplace for moms and kid-related items. In that context it emerges as a highly targeted channel, now in excess of 10 million members, for merchants and brands selling to that audience.
Zulily also uses push email but it offers much more “relevant” inventory for its member population.
Beyond this there’s the Nimble Commerce model (or Local Offer Network), which turns deals into display advertising and distributes it across a broader ad network. Deals could equally be shown in search results (and are sometimes). In these other contexts, consumers who are interested in the promotions can act without feeling like they’re being spammed with unwanted offers.
Regardless the deal survivors all need to get smarter about structuring and delivering deals. That is happening and will continue to happen. But the struggles of daily deal publishers really says nothing about consumer interest in saving money.
As another piece of evidence to validate that assertion, look at recent research from Nielsen, xAd and Telmetrics. The question leading to the graphic above was: what would make you click on a mobile ad? The answers above were the top three.
This research pretty clearly shows what makes a mobile ad interesting to consumers: local relevance, a familiar brand — and/or some appealing offer.
December 2nd, 2012 at 6:02 pm
Greg: This thread from reddit by someone just laid off by LS is extremely interesting with regard to the costs of generating all those deals:
http://www.reddit.com/r/washingtondc/comments/140hoq/laid_off_from_livingsocial_ama/?sort=old
With Groupon and Living Social it takes lots and lots of bodies and salaries to generate revenues from the “deals”. So many bodies that it has led to losses to date. The thread also acknowledges that there were “great deals” and people love deals.
I suppose the trick is to figure out how to generate all those deals without incurring such huge expenses.
December 3rd, 2012 at 1:03 pm
[...] the past.”What Do LivingSocial and Groupon’s Woes Tell Us about Consumer Interest in Deals? (Screenwerk) Greg Sterling: The short answer is almost nothing. Many journalists have argued that consumers [...]
December 4th, 2012 at 12:42 am
Hi, Greg! I’ve commented on this before, but it bears repeating, given what we’re witnessing with all the layoffs at the “deals” businesses: None of this is really new…we’ve had Money Mailer, Valpak and many others for years, and even they have moved online over the years. Plus, I was never much for buying as a “group.” Impulse buying–the reason coupons of any type are popular–is far better suited for individual buyers; I never…wait for it…bought in…to the whole mystique! Daily deals won’t go away, but they will need some re-tooling to make it over the long haul.
My 2 cts worth.
~TW
December 4th, 2012 at 6:34 am
I believe people will always be interested in daily deals. After all, who doesn’t love getting something for 40-60% off? Who it hurts, though, are the businesses that run them. While it’s true that some businesses can do well and still profit from a deal, most businesses lose money. They are sold hard about the number of new customers that they may/will get, but the truth is, most of those customers are one-hit wonders and they will never return. The bottom line is that every business needs to weigh the costs involved and read the fine print. And it’s time for daily deal customers to realize that a business is more than likely losing money on them, so…be reasonable and nice. And heck, come back sometime–without a voucher.
December 4th, 2012 at 1:56 pm
Businesses need to learn how to use these deals and when to use them. They can’t really be used for “cash flow” as someone argued to me because of the “float” that Groupon and others use to their benefit. They’re often bought by existing customers and they’re often bought by “one off” deal seekers. So they’re tricky but they can work.
No one can expect the consumer to fully understand the economics behind them however.
December 14th, 2012 at 6:18 am
I agree that consumers haven’t soured on deals. As a consumer, I certainly don’t mind purchasing a relevant deal for 50% off (relevant being the key word in that sentence). Instead, I think many Merchants have soured on daily deals and dropped out. As a result, the choices I get now in the daily Groupon and LS mailers are simply not interesting.
December 14th, 2012 at 6:38 pm
Its definitely a tough time for LS (living social) right now. Not only did they have those layoffs but they have since announced that they are consolidating office space. They are going to free up space and work to sublease it to cut costs.
They are in a cash crunch at some level right now.
Meanwhile I see an endless flow of offers from LS and groupon in my email, as always. In certain industries I know merchants are relying on these types of promotions. Cost cutting is rampant.
Consumers like these offers. They may be overwhelming in volume, but there can be value, or incentives for things, dinners, outings, events, and products you hadn’t considered before.
One other anecdotal piece of information. I spend time in a local terrific food and dining forum. It is interesting to see the high volume of comments referencing deals used for various restaurants. It happens enough that I recognized the trend.
Deals are out there. They aren’t going away IMHO. On the deliverer side, though, they have to figure out how to deliver these deals at a lower operating cost, let alone stand out among an enormous volume of competition.
Therein lie the challenges.
December 14th, 2012 at 6:57 pm
Jeff: yes, deals have a bad rep among SMBs. However some Rice research in 2012 showed that the majority of deals being run were profitable. But the bad “never again” cases are higher profile.
Dave: The thing that strikes me is the relentlessness of the market — the need to pump out these deals every single day and have a constant flow of them. There was some Borrell research that I believe showed that the optimal delivery time frame for consumers was weekly.
December 14th, 2012 at 8:06 pm
@Greg and Jeff: I’m familiar with some SMB’s that love them, then also familiar with some that had a rough time with them. The one’s that love them are very financial aware: they know what they are getting into.
@Greg: From that thread in Reddit it was interesting to see the weekly pressure on sales people to get X deals every week…and the deals had to generate something over Y revenues. Boy that 2nd part is tough, let alone the sales pressure on volumes. I know I’m overwhelmed by the volume of deals I see every day. I’m going to assume commissions to the sales people takes 30% out of RL’ s or Groupons revenues. The cost pressures and sales pressures must be enormous.
December 17th, 2012 at 11:59 am
[...] recent bad press for Groupon, LivingSocial, and the “daily deals” category generally, consumer interest in deals has not waned. But interest among merchants (and those involved with restaurants whose deals have been shown [...]
December 17th, 2012 at 8:54 pm
The pressure to sell deals at LS must be tough. Just got an email w/ a nice template. It referenced a totally different business, it had spelling mistakes, but the template was pretty.
January 29th, 2013 at 4:06 pm
I believe that the popularity of deals has not subsided. It seems that everyone I know is purchasing something whether it is a horseback riding wine tasting outing, an art class or furniture from one of these coupon deals. The struggles that the sites might be experiencing may be due to the fact that there is much more competition now with coupon sites. There are also sites that sell designer items at a discount after you sign up to be a member. The profits are simply being spread more thin.