Daily Deal Sites: Making a deal with the devil?

I have a real love/hate relationship with those emails that pop into my inbox before I even open my eyes in the morning, tempting me to must-buy experiences, weekends away and 10 vibroplate sessions. These emails may appear harmless, but the promise of self-improvement and gourmet food just proves too hard to resist for me! And such is the reason for Groupon’s success...

The name Groupon comes from the term “group” and was developed by now CEO, Andrew Mason in 2008. It grew out of a website called “The Point”, where you can start a campaign and ask people to participate and deliver action because of the strength in numbers. Just as the campaigns need a ‘tipping point’ of people to become viable, Groupon needs a certain number of buyers to make the deals valid.  This collective buying gives us the access to the deals which just seem too good to be true.

To date Groupon serves 500 markets and 44 countries.

How does it work?

Just one simple email per day featuring an offer for an experience in your city.  If enough people sign up, then the offer stands.  Deals are brought to life by the large creative department, to make them even more mouth wateringly irresistible.   Groupon claims to have saved consumers more than $300 million and generated millions in revenue for the businesses that have signed up.

The retailer benefits from guaranteed sales, Groupon get 50% of the voucher sale price (100% of the voucher is unused), the customer gets a bargain experience – everyone’s a winner…right?

Not necessarily.

Businesses have to enter into a Groupon deal with a loss-leader mentality.  After Groupon have taken their share, there is not much left apart from the hope of a repeat purchase (at full price).  For some businesses, this was too much to cope with, with bargain hunters flocking for the deal, and then never returned, seeking out similar deals to quench their need for another great offer.

Such is the case of Organic Spotless owner Hannah Jackson-Matombe who appeared recently on BBC Breakfast to highlight the concern amongst business owners in using daily deal sites.  She believes Groupon has spelt ‘disaster’ for her cleaning company and states that they will ‘never do a Groupon deal again’.  Her offer of an oven cleaning for £19 (usually £99) meant a loss of £35 per oven clean.  The promise of repeat business remained unfulfilled and being inundated with 300 orders, meant upselling was just not an option.  However, other businesses have grown from their use of Groupon:

  • Preto Rodizio, a Brazillian restaurant in Putney, wanted to increase its customer base, so it  offered £20 meals for £8, hoping to sell 400 vouchers.  4715 vouchers later, the restaurant was inundated with bookings.  The Groupon deal alone directly accounting for 30% of turnover and and additional £20,000 on drinks – just in one month.
  • Moving their plumbing business to Aberdeen meant building up a new customer base and Groupon seemed like the best way to go about with for John and Charlene Wilson.  Discounting their boiler servicing by 61% to £39 meant that they made just £15.60 a service for a lot of chasing around.  But generating a customer database of 300 customers was well worth it for their business.

Earlier this month (Jan 2012) Groupon launched a new version of the Merchant Center in the US which shows buyer demographics of the merchant’s deals. It includes the real-time percentage of deal customers who would recommend the business to a friend, plus their comments. A study from 2010 showed that just 36% of Groupon customers spend more than the value of a deal, with only 20% generating repeat business for the company.

More savvy than chavvy?

I do love a bargain, but even I’m a bit ashamed at pulling out my A4 paper with my coupon details printed on it at, one of Manchester’s top eateries.  I needn’t be embarrassed though, most of the people in here are sipping away at their give-away-champagne (2 course meal and glass of champagne for 2 for £24).

According to Google Adplanner figures, visitors to Groupon’s UK site are slightly more female, all aged between 25 and 44 and earn between £16 and £48k a year.

I think Groupon is the Primark of experiences.  You just can’t help telling people what a bargain you’ve had, and it’s this sharing of information that makes it so successful.

Of course, it’s not just Groupon

I know vouchers are not a new thing.  In fact, the first voucher was created by Coca Cola in 1888, offering the bearer “one glass of free Coca-Cola at the fountain of any dispenser of genuine Coca-Cola”.  By 1913, 8.5million free drinks have been claimed.

Although Groupon are credited with the advent of the ‘daily deal’ a plethora of competitor sites have sprung up to grab a piece of the action.   Figures from last July show Groupon as the clear market leaders, with 77% of the market share, selling £24 million worth of vouchers in the UK in July.  Rivals KGB accounting for £2.5 million and Livingsocial £1.7 million.  Groupon’s spread is wider, covering 45 UK cities and offering multiple daily deals per city.

Are daily deals becoming yesterday’s news for Groupon?

According to Forbes Magazine (US), Groupon is the ‘fastest growing company ever’ and CEO Andrew Mason knows that the company can’t just rest on its laurels.  iPhone App Groupon Now! brings everything we love about getting a deal to the here and now.  Allowing business to plug into quiet periods, and allowing consumers to press one simple statement ‘I’m Hungry’ or ‘I’m Bored’ to tap into real-time deals around them.

Forrester Research (October 11) are not so impressed, suggesting that Groupon is merely a bad email database of 30 million people who are prepared to pay half price.  Despite rejecting a $6bn takeover deal by Google, share prices have dropped and the original valuation of $20bn is now more like $10.8bn.

Groupon is also heavily reliant on the mighty Facebook, with 44% of traffic in Jan 2011 coming from the social networking giant.  And Facebook, who like to replicate successful websites have launched Facebook Deals across a number of countries giving people access to a similar Groupon Now! service, but through a platform which is all about the sharing.  Plus, Facebook has reach in over 100 countries.   Google Offers is is also available to localised marketing in the US and further afield, created after the failed take-over bid.  It will be similar in style to Groupon with daily emails, however it will be powered by Google Checkout and integrate with Google Wallet.

When it comes down to it, daily deals are a way of life for many of us.   They influence where we are going to dine out for that special occasion, give us ideas for things to do, help us buy better birthday presents and we have never looked or felt SO good.   Who cares who sends us the deals, as long as we keep getting them?  So if you want it, can afford it and will really benefit from it, buy it.  But always read the Ts and Cs…