Jun 18, 2011

[Opinions] Why I Don't Appreciate Daily Deals Sites

I'm not a big fan of daily deals sites.

Yes, as a consumer it seems to make senses. Suddenly things that you might not normally purchase become a lot more affordable given the promised 50%++ discounts offered on goods and services. So you shell out money you normally would have saved for a rainy day and then the store owner makes a little profit. Right? Sadly, that last part is definitely wrong.

CHICAGO, IL - JUNE 10:  The Groupon logo is di...Image by Getty Images via @daylifeI've repeatedly expressed my dissatisfaction with the concept behind Daily Deals sites for some time now, although not necessarily on this blog. While it's bad enough that they make people spend more instead of saving more, they also cause irreparable harm to a lot of small and medium size businesses who don't have the marketing know-how to properly gauge if a daily deal campaign will really benefit them.

I came across this Tech Crunch article by Rocky Agrawal as part of a series of posts that discuss why the daily deals industry is a bad idea. In this particular post, he paints a very clear picture of what's wrong with the Groupon model in a way that I couldn't do better myself.

Businesses are being sold incredibly expensive advertising campaigns that are disguised as “no risk” ways to acquire new customers. In reality, there’s a lot of risk. With a newspaper ad, the maximum you can lose is the amount you paid for the ad. With Groupon, your potential losses can increase with every Groupon customer who walks through the door and put the existence of your business at risk.

Groupon is not an Internet marketing business so much as it is the equivalent of a loan sharking business. The $21,000 that the business in this example gets for running a Groupon is essentially a very, very expensive loan.  They get the cash up front, but pay for it with deep discounts over time.  (This post applies to Groupon operations in the United States and Canada; it’s different in other parts of the world.)

In many cases, running a Groupon can be a terrible financial decision for merchants. Groupon’s financials also raise questions about its ongoing viability. Buying Groupon stock could be as bad a deal for investors as running a Groupon offer is for merchants.  This is my opinion, but I have some facts to back it up.

So think about that deal before you claim it. Do you really think you're supporting a local business when you take advantage of a deal like that? Or are you better off remaining a steady loyal customer who only buys what you actually want / need at the established value? Or do you want to feed the revenue stream of the daily deals provider instead and gut the SMB owner one coupon at a time?

The daily deals industry is still in its infancy here in the Philippines - I only hope that it won't take off before its too late.

You can read the other posts in this guest series here:
Enhanced by Zemanta

No comments:

Post a Comment