There are a number of ways that daily deal companies could improve the economics for merchants.
- 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.)
- 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.)
- Limit customers based on demographic criteria. (Of course, this isn’t in the deal company’s interests.)
- Reduce the minimum discount for the offer. (This will drive down volume.)
- 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.
- 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.
- 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.)
- 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.
- 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.)
- 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.)
- Prompt users to follow business on Twitter at time they purchase.
- 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.)
- 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.)
- 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.