The following is a guest post by Elaine Hirsch.
Deal sites have been all the rage of late. Companies such as Groupon, LivingSocial, and Amazon Local have taken off by using the bargain-offering business model pioneered by Groupon. In addition to causing a ruckus in the blogosphere, these deal sites have been buzzing among legitimate investors. Respected publications such as the Wall Street Journal cover the impending Groupon IPO on a weekly basis. At first, deal sites, which usually offer at least 50 percent off meals and other items, seem a great deal for both businesses and consumers: businesses gain traffic and customers get discounts. The demographic deal sites benefit the most are students of all levels, including those in online bachelor’s, master’s, and PhD programs. Despite the apparent advantages of receiving good deals, however, this business model has several disadvantages for companies.
Not a Profitable Deal
One of the biggest problems for deal sites has been the lack of profitability from such deals. According to a study conducted at Rice University, the promotions offered by deal sites resulted in more than a quarter of participating businesses losing money. In addition to miniscule margins, companies have reported the “bargain-hunting” nature of new customers as a result of deal sites. These customers feel entitled to buy products at discount prices and more often than not accordingly don’t tip. This customer outlook takes a toll on employees as well, leading to poorer overall customer service.
Ultimately, the deal-offering process erodes the quality of products businesses are able to offer, not only because of low margins but also because it creates a moral hazard among customers who expect deals from companies, not realizing these are only sustainable as just ways to sample products before paying a fair price.
Not What You Signed Up For
At their hearts, deal sites are essentially marketing companies. They provide their partners with advertising and in return receive a delicious slice of profit margins. In order to entice partnerships, however, deal sites have to compete against one another for users. Avid deal site users will have e-mail notifications linked to companies and mobile apps to discover sites on the go. With so many ways for deal sites to contact customers, it’s easy to be overwhelmed with unappealing deals in your inbox such as waking up to “50 percent off of Brazilian waxing.”
Despite the annoying e-mail, deal sites aren’t slowing their efforts to entice subscribers with the “next big deal.” Business models like that of Groupon Now are leveraging mobile apps to push notices to users to buy relevant deals by using location-based services. Adding another layer of marketing tactics, this further promotes consumers to buy deals they really don’t need.
So what can you do as a savvy consumer? Here are some tips:
・ Use these deal sites as a way to discover new opportunities. Understand these are essentially samples of products, so treat the employees the way you would treat any business. This will pay dividends in the future.
・ Don’t jump on every deal that seems attractive. Most sites offer at least 24 hours to decide, so take your time to do research.
・ If you do end up impulse buying, keep track of expiration dates. Most deal sites offer some form of platform to do so, so stay diligent so you’re not wasting coupons.