Deal Sites Growth Wanes As SMBs Find It Difficult To Quantify Their Value

Living Social and Groupon, the two largest deal sites have been piling up the losses. After rapid growth that fueled intense investment, the weakness of their email discount-dependent business model have become apparent, which has prompted a race to diversify into more traditional eCommerce offerings.

Not all it was cracked up to be

The deal site revolution was thought to be the next growth channel for SMBs to dive into. It represented an opportunity to expand its reach to find new customers through deep discount offerings with the potential of recruiting new, loyal customers. The problem is that the importance of the price discount itself was not understood. Rather than find loyal customers businesses were racking up significant costs from the discounts without any indication that the program yielded its objectives. The programs may:

  • target the wrong customers (up-scale store promoting to lower income consumers),
  • fail to plan for the increase in volume,
  • assume any new customer is beneficial, and
  • fail to capture the right data to build the relationship with future marketing.

The more flexibility the better

I’d recommend SMBs avoid jumping into the deal site trend until the partners offer a way to target the right customers (targeted marketing versus one-size fits all email blasts) and they have an adequate plan in place to deal with the volume and ongoing marketing efforts to convert new customers into returning customers. Shop around and consider other partners that don’t rely on deep discounts or offer you more flexibility to restrict redemptions and reduce your exposure.