Last week Farhad Manjoo, who writes about technology for Slate, wrote an article with the (deliberately?) provocative headline “Ding Dong, Daily Deals Are Dead -- The thrilling demise of Groupon’s crummy business model.”
In the piece, Manjoo goes on to lament Groupon’s relatively weak performance since their November 2011 IPO and suggests that Groupon’s – and the many other “daily deal” sites – had a flawed business model that took advantage of many of their participating businesses.
Just based on the number of daily deal emails we get from Groupon and others, we presumed that it had to be a thriving business model. All those emails couldn’t be wrong, could they?
We decided to ask an expert.
Paul Hoban is a UCLA Anderson Ph.D. student entering his fourth year in the program. His research focuses on the effects of advertising, especially online advertising on consumer purchase behavior. His past projects focused on the effects of online display advertising (i.e., the banner ads that everyone loves so much). He examined the causal effects of these ads on site visitation and within site browsing behavior. His current project focuses on the impact of daily deals, with two distinct questions. The first question is: What drives demand for online deals (i.e., the discount percentage? the resulting price?, the quality of the merchant offering the deal?). The second question is how does running a deal affect a merchant in the long and short run? For this question, he is specifically looking at the impact of daily deals on the frequency and valence of a merchant's online reviews.
Hoban's views on the industry are not as pessimistic as Manjoo''s. Take a look at the accompanying video for Hoban’s opinion on Groupon and the daily deal industry.
In my opinion I believe overall daily deals are most likely going to hurt businesses if they haven't already. I've recently began working for a daily deals aggregator which has had me spending a lot more time around the daily deals market.
I've personally found a few great deals from company's I otherwise wouldn't have every known (let alone purchased anything from). However, with that said I can safely say that for at least 75% of the purchases I make via a daily deals website I'm not likely going to repurchase anything from that company.
I don't know if it's because simply me but, I've seen (and bought)products at substantial discounts which I guess you could say un-motivate me when shopping around company's without and deals.
For consumers: it's amazing. Perfect opportunity to try out a new product for cheap. Which I guess in theory (if the consumer loved the product) would lead to repeat purchases. But, as I mentioned above would you like to pay (example) $50 for a pack of diapers when yesterday you paid 15?
Posted by: Jesse Fogarty | 08/23/2012 at 07:12 AM
I think Groupon and other daily deal sites are still able to thrive. I think that getting a good deal is the Internet Marketing strategy that made the internet the retail monster that it is. The daily deal sites that sell out to big companies the way that Woot.com did may fail because the bigger sites don't see or need the value in a daily deal site. As long as there are people looking online for bargains I think the daily deal will never die.
Posted by: Internet marketing in Westchester | 08/29/2012 at 06:42 AM
Definitely something to keep an eye on. But neither @Farhad nor @Paul (or original @Rakesh, I think) have talked about the impact of online, direct marketing or ebay like business models on Groupon. Are their share of total business on the increase? In other words are the 'looking-for-a-deal' people finding better deals through online market? In India, I know a lot of people who say they find shopping on flipkart (et. al) better (especially for books). Many teens I talk to, routinely check the price on flipkart etc. before going out physically to shop & negotiate. LOL.
Posted by: mad.madrasi | 08/29/2012 at 07:45 AM