Marketing around the collapse of the Daily Deal

When Groupon rejected a $6 billion buyout from Google in late 2010, the company clearly saw nothing but rosy skies. Generating nearly $2 billion in annual revenue, their prospective earnings at that point showed nothing but an uphill curve.

Today, they’re likely singing a different tune. After peaking at a share value of $31.14 following their initial public offering in November, the stock has slid as low as $12.95 this April. That means there are a lot of early investors crossing their fingers for a rebound of a business model that probably won’t find a second life as rich as it’s first.

Anyone receiving daily Groupon, LivingSocial, or any other daily deal email should already recognize the problem. In 2010, and even early 2011, these deals were fresh and exciting. Groupon does the work and reaches their extensive email list on behalf of a company looking to quickly expand its market. Yes, the business has to sell their product at half price and then give Groupon 40% of that, but it was worth it for the huge spike in awareness (and the money up front).

The early adopters did well, even if it was the equivalent of a restaurant taking in $12 for a $40 meal.

But then something changed — the daily deal created a new type of coupon consumer. Yes, the deals prompt them to visit an establishment they might never have gone to, but will they return? Most likely not — after all, they’ve got another half price coupon at another place down the street. And fat chance on a daily deal hound leaving a generous tip.

Restaurants have caught on, and most of the deals being sent out in 2012 are for struggling second-tier joints whose food doesn’t exactly speak for itself, requiring an extra push. Unfortunately, the decline in quality of the businesses represented affects overall coupon sales as well.

Massage therapists may be the perfect example of losing out on the Groupon glut. A 90-minute massage for $40? Yes, please! But once a customer pays half price for a massage, they’re more likely to find another deal for another therapist than return to the first and pay $90 for the same service.

Bottom line? Groupon, LivingSocial, and their ilk may survive, thanks in part to valuable, quite massive email lists, but without a restructure of their model they’re unlikely to meet the expectations generated by last year’s IPO. So what does that mean for the small business owner who wants to build real customer loyalty? Start here:

Text message coupons

A Whole Foods competitor grocery store in my town recently started a text coupon campaign. The first offer was $10 of free groceries with a $10 purchase (this came on the heels of the exact same offer, via Groupon, from Whole Foods). Without question, I texted in to receive the coupon (after spotting buzz about the deal on Facebook), effectively giving the company my phone number and free rein to text me at will. Although the subsequent deals have never been as good as the first, the promise of a free pound of organic ground chuck with a $20 purchase is enough to prompt a stop on the way home from work. I’m eager to get the texts, and find myself shopping at the store more than Whole Foods, despite initially getting the same deal from each.

Find a better middle man

In the wake of daily deals, new sites like InTownDiscounts.com have sprung up, offering coupons every bit as generous as a Groupon, but selling them to consumers for a dollar. If the deal is good enough, people will buy the coupon (essentially a fee to the provider). The business may still be giving away product at half price, but they’ve cut out the 40% cut to the daily deal site and are handling the cash transaction themselves.

Build your own database

Groupon’s staying power lies in its ability to reach people, passing spam blockers and landing daily in millions of inboxes. Think local and build your own database. Does your cash register have an email signup sheet on the counter? Give something away 2-for-1 to people who sign up, and then offer them a weekly or monthly deal via email. Make sure that your outreach saves them money — don’t just tout yourself and hope they read it and come back in. If they get used to finding a terrific deal (think Groupon style, 50% terrific), they’ll love getting your emails, and they’ll share them with friends.

For better or worse, daily deal sites changed the game for small business marketing. ‘10% off’ coupons are now about as worthless as Kodak film. Thanks to Groupon, it literally takes ‘HALF OFF’ to draw new customers through the door. Embrace it, but cut out the gouging daily deal providers. Gather your own clientele and give them a reason to keep coming back.