Daily deal websites are starting to see huge volumes of traffic. But are they good for retailers? Helen French investigates?

Should retailers pile on to Groupon?

We all know the logic behind vouchers and coupons: sell enough of something at a discount and you might still make a healthy profit, and perhaps get a few new customers in the process.

That’s what daily deal organisation Groupon aims to do for businesses. Launched in the US in 2008, it quickly expanded as it offered deals for local businesses to consumers from its website, and reached the UK in 2009 – by which time it had inspired a huge number of similar sites.

It’s currently head of the pack by a large margin, though companies like LivingSocial and KGB Deals are hard at work trying to catch up. Behind them is Google Offers, currently in beta in the US.

As Groupon and others extend their reach into countries around the world, it seemed a good time to investigate just what benefits daily deal organisations might offer to PC and IT retailers. In short, they’re big business, and if you’re a retailer you need to know about them.

The most obvious benefit of these websites is their huge reach. The good ones have long email marketing lists – the best ones make users sign up just to see deals in the first place. Social networking enables them to reach even more people. With Groupon, for example, users are encouraged to share deals through Facebook and Twitter, and they can save money when friends take up offers.

Consequently, your products are put in front of a lot of faces eager to find a bargain – and sometimes they’re even swayed to buy something they might not have previously thought of getting – not only because the item is cheaper than normal, but because the offer has a limited time period.

A spokesman from Groupon tells PCR: “Groupon is a great way to clear product lines from inventories while still maintaining a healthy profit, without replacing existing trade.”

Choose carefully
Careful product selection is important for this kind of offer. You need to choose something that will hopefully draw people in, with a big enough margin that you can place it at an attractive price.

The Stone Group was the first firm with PC hardware on the UK Groupon site. We asked Daley Robinson, group marketing manager of The Stone Group, how it chose what items to put forward. He comments: “We selected the best fit based on available stock within the channel. It needed to be a device that could offer good performance whilst still hitting the desired price point.

“All Groupon deals must be passed by the Advertising Standards Authority as a matter of course, so we needed to take advantage of our in-house Samsung warranty provision and wider service-wrap to be able to offer something that others couldn’t.”

Don’t over-extend
Another thing to consider with product selection is the amount you have to offer. Don’t promise more than you can give. This is even more important when it comes to offering a service rather than a physical product, because it’s easier to overestimate what you can provide.

Don’t over-extend yourself. Consider the worse-case scenario – what if everyone wants to book a service for the same day and it’s during a time when you’d normally have regular customers paying full price anyway? You need to be able to look after your deal customers in a reasonable amount of time without losing the customers you already have – and that’s often a lot harder than it sounds.

The price of success
There is a cost to such schemes, of course. Groupon is said to take a particularly large slice of the pie (though it takes a smaller percentage for national deals), and it also gets the money upfront. You are paid when the voucher is redeemed.

In return, you get exposure and customers – so is it worth it, on balance?

Stone Group’s Robinson comments: “Stone is a brand that is widely known with the public sector and educational B2B markets, but not so well known outside of it. The exposure that being associated with Groupon – a marketing behemoth – has brought to us has definitely a positive factor for us. It’s got our brand out to people who would not have necessarily come across it otherwise.”

Naturally Groupon has a few things to say in its favour too: “This [exposure] puts a company in the spotlight, and is a source of repeat business and word of mouth marketing.”

Not all of its customers are satisfied. Al Findlay, a freelance IT and AV consultant, only had two sales from his Groupon deal, and didn’t make much money from either of them. He explains: “It wasn’t worth it at all for me: the copywriting and marketing was so poor for my listing that it generated just two sales, one of which never appeared and the other just took the service with no additional sale made.

“Groupon was very unresponsive to my feedback; when the ad first went live I asked it to adjust the copywriting to sound less idiotic, and it failed to send out the marketing emails for my ad too, so I got very little exposure.”

This contrasts sharply with the Stone Group’s experience, with Robinson saying: “We’ve had excellent feedback on our service provision so far. We hope that all customers go away and have a positive experience of dealing with Stone. The ideal scenario for us as a predominantly B2B organisation is that they then take that positive experience in to their place of work or study. That’s when things could get quite interesting in terms of opening up new business development opportunities for us.”

Groupon and sites like it won’t necessarily work for every retailer. If a daily deal business comes to you with an offer, make sure it’s in your interest to take them up on it, that you’ll get enough revenue and that you have products that are suitable. Then re-read the small print again. Finally, good luck.

The Daily Deals Lowdown:

The daily deals market is already crowded. Shane Hayes, founder of daily deal aggregator site Siftie.co.uk and analyst of data on the sector, reports that Groupon, KGB Deals and LivingSocial are currently the big three, with Groupon significantly in the lead when it comes to market share.

There is also a raft of currently smaller players too, such as LikeBees (from Apprentice winner Michelle Dewberry), Crowdity and Wowcher.

Entry is difficult even for big firms. Facebook retreated from its Deals after four months in the US. Yelp pulled out due to lack of sales.

However, new entrants into the sector are still coming – the biggest to come for the UK is no doubt Google Offers, already in beta in the US. Let’s take a closer look at the four biggest players:

Groupon filed an IPO in June 2011, claiming $700 million revenue for 2010. Great! But much of the money it makes goes into marketing to grab more subscribers and it soon revealed operating losses were $420 million last year. However, it is the best-known deals brand and has a massive subscriber list (70 million and counting) that is an attractive proposition for businesses.

In July this year LivingSocial began its first big UK and Ireland marketing push, including TV advertising. Peter Briffett, managing director at LivingSocial UK, Ireland and the Netherlands, said: “LivingSocial has saved its users more than £11m in the UK and Ireland, testament to our members’ appetites for exploring their local city and having the chance to purchase things they couldn’t before.”

KGB is the New York-based company behind the The Number 118 118 – the number one directory assistance brand in the UK. It’s the third largest daily deals site in the US, and Siftie.co.uk reports that it’s number two in the UK. KGBdeals has recently started TV advertising and the firm says it has a “young, savvy, educated and mostly female audience.”

Google Offers
Internet giant Google tried to buy Groupon for a reported $6 billion at the end of 2010, and came up with Google Offers when the deal was turned down. As you might imagine, it’s been designed to work with Google Checkout and Google Wallet. It opened in ‘beta’ on May 26th 2011 in the US. Google has recently opened up new territories and will no doubt be hoping to expand globally soon. Watch this space.

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