How daily deal companies could improve the merchant experience — and why they won’t

There are a number of ways that daily deal companies could improve the economics for merchants.

  1. Limit the number of deals people can buy in a set period of time. This would discourage deal habituation. (Of course, this isn’t in the deal company’s interests. Hardcore cheapskates would just setup multiple accounts.)
  2. Limit the distance from the business that a purchaser can be. e.g. you can only buy deals within 5 miles of your home. This would discourage people who are 30 miles away and are willing to drive to save a few bucks one time. The farther away you are, the less likely you are to become a regular. (Of course, this isn’t in the deal company’s interests.)
  3. Limit customers based on demographic criteria. (Of course, this isn’t in the deal company’s interests.)
  4. Reduce the minimum discount for the offer. (This will drive down volume.)
  5. Provide customer contact information to merchants so that they can follow up and invite repeat visits. This has privacy issues and would reduce the need for a business to do another run with deal company.
  6. Train businesses on best practices for inspiring repeat visits, such as getting follows/likes, collecting email addresses. This would have operational impact (training time) plus it reduces the need to do another placement with the deal company.
  7. Send out reminder emails. Hey, it’s been 3 months since you redeemed the Groupon at X. Have you thought about going back there? (They’d rather sell you a deal for another restaurant where they can make a fat margin.)
  8. Restrict deals to new customers only. This, in my mind, is the most dangerous part of Groupon and the like. You give up 75% of revenue to “acquire” customers you already had. I was talking to one merchant and he was visibly despondent when he was talking about seeing his regulars in line with a Groupon.
  9. Advise businesses to set their Groupon redemption value such that it doesn’t entirely cover the cost of meals and the customer has to pay some portion at regular retail. Cheapskates will check out the restaurant’s Web site and see that this won’t be a freebie and won’t buy the Groupon. (Deal site loses twice: discouraged cheapskates who don’t buy and commission on the portion that is paid at full retail.)
  10. Allow users to opt-in to a business’s email list at the time they purchase the deal. (This would mean losing some grip over the customer relationship.)
  11. Prompt users to follow business on Twitter at time they purchase.
  12. Force tipping at the time of purchase. A standard tip based on retail price could be added at time of sale. (This would deter cheapskates from buying deals.)
  13. Enforce restrictions at the point of purchase. If a business has stated only 1 item can be purchased, this should be enforced to the best of the systems ability, like checking email addresses and credit card numbers across accounts. (This would eliminate some transactions.)
  14. Focus sales efforts on categories where the daily deal creates a real win-win, as opposed to preying on businesses who don’t know better. (This would dramatically reduce volumes and revenue.)

There are lots of things the deal companies can do. But none of them are in their financial interests in the short term.

The core problem is that the interests of the deal companies are directly opposed to the interests of the business. The deal companies want to sell as many deals as possible to all comers. Not only does this generate more revenue, it’s more operationally efficient. (It’s much easier to write one description for 2,000 coupons than 20 descriptions for deals of 100 each.)

Businesses want a much smaller number of ideal customers.

There’s also a bit of game theory involved. The daily deal sites are dependent on cheapskates for revenue growth. If you make it harder for the cheapskates, they’ll use some other site.

If you look at the mean purchases per user in the Groupon S-1, they’re just below 2 in established markets and a large portion (80%) of registered have never purchased anything. That likely means that a small number of people are buying a lot of deals… exactly what merchants don’t want.

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About Rakesh Agrawal

Rakesh Agrawal is an analyst focused on the intersection of local, social and mobile. He is a principal analyst at reDesign mobile. Previously, he launched local and mobile products for Microsoft and AOL. He blogs at http://blog.agrawals.org and tweets at @rakeshlobster.
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21 Responses to How daily deal companies could improve the merchant experience — and why they won’t

  1. Here’s your answer from a daily deal oompany.

    1. We already do this, I understand why deal companies don’t do this but they should.

    2. Expensive to implement and requires customers to give you their actual address, (which are not necessary to process credit card payments anymore)

    3. Not completely sure how to do this on our website or if its legal?

    4. Actually I think there is a mentality around the 50 % number in that its actually a discount to move people to action. Anything lower would just drive all habitual users of your product. I don’t have evidence but based on different promotions I would gather this is the case.

    5.Privacy issues, not even worth talking about.

    6.Agreed, we offer advice all the time to merchants. Definitely not in any daily deal companies best interest though.

    7. I have never thought about this? Why doesn’t the restaurant do it themselves? (we might add this feature, thanks for the sugg)

    8. We do this all the time with salons. Makes perfect sense, however you have the potential to piss off existing customers that aren’t getting the discount. Also, sometimes it’s good to just throw your regulars a bone.

    9. We do this a lot, obviously not a money maker but a natural evolution of the space, great point. Less people buy, but usually they are a better quality lead.

    10. Nobody really wants to be spammed by a million individual biz unless they really love that specific biz.

    11. Good idea, but until yesterday and some point in the future not many biz’s have twitter accounts. The apple integration will certainly help

    Our philosophy at TroopZilla is a better quality lead. We are a marketing service to bridge the online and offline world together. Every Zilla(deal) we run we aim to meet the business needs first. Why? We believe its our business to service the business marketing needs first, sure less people will buy, and we will make less money but we consider it a privilege to be able to offer our partners offers to our subscriber base. We want a healthy ecosystem. If it’s not a win/win for both the business and the consumer we don’t do it.

    Rocky, you are right though by us doing this it makes us a lot less attractive to investors.

    The grouponzi’s of the world are diametrically opposed to the business’ needs regardless what there PR teams spin.

    Your analysis is exactly why their is opportunity for other deal companies to infringe on Groupon’s market share because they really are not building a moat(unless you count a 150 day restrictive covenant a moat) massive reach is purely a commodity (that they purchased at a hefty price I might add) and over time their strategic advantage will be dramatically reduced.

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  4. Charles says:

    I’d like to leave some feedback as a regular “daily deal” site user.

    Your requirement for distance (#2) would have meant I didn’t find several really awesome eateries in Chicago. I’ve gone well out of my way to use a daily deal “coupon” and then found somewhere so awesome that I am willing to drive 10 miles to get there. I can think of one place I found in the very early days of Groupon that I go to whenever I’m in the area, and whenever anyone comes to visit me in the city it is on my “food tour” I give them. I have put hundreds of dollars in business through that one place, even though it’s not nearby.

    I don’t like #12 either. I always tip, but I do it begrudgingly. Not because I don’t like the service, but because tipping is basically unheard of where I come from originally. I don’t think anyone should be forced to tip. I think businesses should unite to fix a broken system (paying staff a proper wage vs tipping).

    I do agree though that businesses should find more ways to get better value for money out of these daily deals. I would say a vast proportion of these businesses go into it thinking it will be a magic bullet and they can just sit back and watch the customers flood in, but there needs to be some serious work to get value out of each and every person that walks through your door. Someone needs to come up with a nice sheet to give all these business on how to make more repeat customers from these new eyeballs.

  5. maxcuban says:

    “There are lots of things the deal companies can do. But none of them are in their financial interests in the short term.”…and is it possible it will be in their interest in the LONG TERM? ‘ll be interested in a response from the writer or any reader..thans

    • lance says:

      In the long term we are all dead. In the medium term deal companies must meet both the needs of consumers and merchants to survive. The smart ones will figure that out.

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  7. brad peterson says:

    In time the daily deal companies will be forced to implement these very things- I cant wait to see a Groupon for Groupons! lol an equilibrium will be reached amongst the daily deals ecosystem in short order…

  8. Pingback: Roundup of my Groupon and daily deals coverage « reDesign mobile

  9. Joe B says:

    I can’t agree with #8, as there would have to be a constant monitoring of people who are purchasing products against a list of established clients which many businesses don’t have, and regular clients should be invited to buy a discounted rates, how else are you going to keep their loyalty? If they can’t buy your discount they are probably going to go find another daily deal site, buy that discount, and stop being YOUR loyal customer.

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  16. Julianne Corkery says:

    Does Groupon sent an invoice to the merchant when the deal is over .

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