Deal or no deal – successful or unsustainable?

Last year was the first year in four that there was no growth in online daily deals revenues

 

It was a successful deal by any measure, with more than 700 vouchers worth €20 each sold via Groupon – but operating a daily deal is not something James Whelan Butchers would repeat.

“We did it once but it’s something we wouldn’t do again,” says director Pat Whelan, arguing that the daily deal business model is simply “unsustainable” and does not deliver repeat business.

The launch

From just 60 deals available in mid-2010, on any given day you can now expect there to be more than 1,000 deals on offer, with about €184,000 – or €127 every minute of the year – spent on a daily deal.

The growth in the market means that more than 2.1 million vouchers have been sold in total – or almost one for every two people.

However, the market now looks to be stalling. According to data generated by Mydealpage. com, total deal revenues stabilised in 2014, the first year there was no growth since its launch in 2010.

“We didn’t see the same growth we’ve seen in the past number of years; December was very strong but overall there was more stabilisation and numbers were very close to where they were in 2013,” says Charles Maltha, co-founder of deal aggregator Mydealpage.ie.

He cites a lack of disposable income in the face of rising rents and increased taxes as a factor in the lack of growth.

However, this may not be the only factor – a proliferation of deal providers, a limited market from which to win new deals and a level of apathy from consumers means that daily deals are in a state of flux.

Is it though, as the Harvard Business Review once asserted, “a revolution that was never meant to be”, or is there life in yet in the daily deal model?

Tricky model

Harvard Business Review

In the case of daily deals, though, are those selling the products and services really better off?

Typically, the deal provider may take as much as 50 per cent of the cost of the deal. Not only that, but if a voucher isn’t claimed, it won’t pass on any of these funds to the service or goods provider.

This means that a deal generating, say €40,000 (2,000 vouchers sold at €20 each), may only reap €20,000 for a restaurant – and it has to feed and drink as many as 4,000 people with that money, given that most meal offers will be for two people.

As such, it turns doing a deal into an expensive exercise.

“The actual model itself is not sustainable as the discount is not sustainable,” says Whelan, noting that the butcher made its 2011 deal work by charging purchasers €10 for delivery and offering free delivery for those who increased their spend to €100.

“We got the average spend up from €42 to €72, which meant that the deal worked marginally for us,” he recalls, and advises potential vendors to “make sure you’re tailoring something that you can sustain and can manage”.

For Maltha, however, the commission split is not always as simple as the much touted 50-50 breakdown. “They have learned to work with businesses,” he says of deal operators, noting that some of the smaller deal operators may do a deal based on commission of just 10-12 per cent.

“A high-end hotel which will sell well, the operator will calculate the potential profit and work out a commission figure which is still of interest,” he says, noting that a small business, on the other hand, may be a more difficult prospect and so the cost will go up.

“As long as you run a deal that’s at least break even, you’ll see the benefit,” Maltha adds.

“It’s about making sure that the deal doesn’t cost you more than it generates and is about getting exposure for yourself.”

Driving loyalty

“One of the things you’d hope to harvest from that experience is to build new relationships,” says Whelan. However, he found no loyalty among the Groupon customers and, while it harvested email addresses, multiple communications generated “little interest”.

“Those customers were only excited about price,” he says. “We quickly identified that that customer wasn’t our customer. Something driven by price only isn’t a proposition in this space”.

Gerard Egan, clinic director of MyDental, who has used Groupon deals from time to time to help with brand awareness for his dental practice, has had a different experience. “It can be difficult to let the wider general public know that affordable dental treatments are available in Dublin,” he says. “Groupon is one way of promoting our services”.

Egan has found loyalty among this cohort of buyers. “I would say that almost all the voucher purchasers from the past have come back to us at some point where they needed additional treatment,” he says.

So maybe there has become a clearer demarcation in what types of goods/services are more appropriate to be sold via a daily deal.

‘Marketplace’ Indeed, a casual examination of the deals currently on offer would suggest this.

When the daily deals market first took off in Ireland back in about 2010, deciding where to eat out or drink was driven to a certain extent by who had a daily deal and for where.

Now however, restaurants look to be a spent force on daily deals sites, which have increasingly moved into selling health treatments and products.

In early January, just 2 per cent of deals listed on Groupon were in the food and drink category, with a significant swing towards goods (40 per cent); beauty and spas (10 per cent); and women’s fashion (9 per cent).

While it is still possible to garner a premium deal (Living Social, for example, recently offered a one-night stay in the five-star Fota Island resort in Cork for €125), it seems that they have become a lot more difficult to find.

Now you’re more likely to find a low-cost STI screening offer (61 per cent off with Groupon); sofas; a gastric hypno balloon package (€19 with dealrush.ie); and “skirted leggings” (€16.99 for two pairs including delivery, if you’re interested).

And, if once upon a time a deal was only “on” if a minimum number of people subscribed to it, now it is more of a buy-any- time-you-want deal; the “daily” element has also been consigned to the rubbish bin, with deals live for as long as 20 days.

“Deals are being kept on the site a lot longer than they were before,” says Maltha, noting that purchasing habits have also changed.

Now, instead of opening your morning email and rushing to buy a deal before it is over, consumers are shopping at their leisure, on the bus home from work on their smartphone or in front of the television with their tablet.

Another innovation is likely to come in the way deal operators market the deals. Maltha is in talks with a potential new entrant into the Irish market from the UK. It is hoping to use television advertising to push its deals out.

Outlook

“You can advertise through traditional media and not sell anything tangible against it,” he says.

This means that for businesses which will incur costs whether or not customers actually show up – such as the ice-skating deal (see table) which sold almost 6,000 vouchers at €7 apiece – offering a deal can be an effective way to keep their business ticking over.

Indeed, getting people into your restaurant, hotel or beauty salon keeps staff employed, may attract other customers by sheer virtue of being perceived as a popular place and also gives you the opportunity of upselling and increasing your revenue.

Whether it is sustainable over the longer term remains to be seen.

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