“Daily deal” sites are shutting down

by Tony Fannin, President, BE Branded  |

There’s a shake out going on in the “daily deals” web site business. Nearly one-third of these kinds of sites have shut down in the last year. When Groupon and LivingSocial had taken the market by storm, it spawned over 500 “me-too” sites in the last several years. At first, it was a ground-breaking way to do business. Customers won, sites like Groupon won, and local business expected to win with new, repeat customers. Unfortunately, things haven’t worked out as planned. As with most web based businesses, the long-term viability isn’t as promising as the first several years.

As the “daily-deals” industry has matured, it’s becoming more costly to win new customers and gain market share. The reason being is the space is now so crowded, that no one is truly branded beyond Groupon and LivingSocial. Everyone else is really commodity. For example, last June, Groupon spent an average of $7.99 in marketing to acquire a new subscriber. Today, they have to spend $23.46 to acquire a new subscriber. Overall, Groupon spends $378.7 million a year in marketing. That’s up over $35 million from last year. It also costs more to run a “daily deal” company with added sales force and technology. This is not an industry that you can scale through more technology, even though it’s a web based business. You need feet on the ground selling to local business. It’s a human, intensive venture. Another problem is many people are not turning into repeat customers. This compounds the acquisition cost of getting new customers.

Local businesses, too are finding out, it’s not a very profitable way to gain new customers. Often, many businesses lose money on their deals, hoping to gain new, repeat customers. Often, this doesn’t turn out to be the case. As with the “daily deals” sites themselves, many people are not turning into “regular customers”. It also has a side effect by eroding the business brand by training people not to buy unless you offer a steep discount. That’s not a great strategy, unless you’re WalMart.

One of the main problems these sites realized is they still needed to spend money on REAL marketing. Just because it’s a web based business doesn’t mean you don’t need to spend money on advertising and rely on “free” social media. Mr. Khabbaz started RelishNYC in 2009, but is now out of business. Mr. Khabbaz said that without marketing, it was “impossible” to get new subscribers and he was rarely able to attract more than 20 customers to a deal. He had about 10,000 subscribers when he shut down his sites in April. Not too many competitors can keep up with the spending Groupon and LivingSocial put toward marketing, so, as a result, they get swamped and lost in the sea of “generics”. It takes a strong brand to compete, even in a digital world.

It’s not just the small sites who are finding it a rough going. Facebook has abandoned the “daily deal” game all together while Yelp has slashed it’s staff in half.

What are some key takeaways in all this?
• You still must spend on marketing to keep ahead of your competition
• A strong brand helps you stand out in the a sea of competitors
• There still needs to be a win-win-win (web site, consumers, local business) Unless everyone wins, it just won’t work.


About Be Branded

Tony Fannin is of President of BE Branded, an integrated marketing firm who helps clients BE Somebody to their customers. If you aren't somebody, then you are commodity.

6 Responses to ““Daily deal” sites are shutting down”

  1. I think a big problem these companies have is that the customers they recruit are those who are looking for a “good deal” or possibly a free item. By nature, I don’t think these people are going to go back and pay for something they already got for free or very reduced price.

    • Ari, Thank you for taking time to read my blog and sharing your thoughts. I agree with you. Deep discounting and couponing are slippery slopes where once you’ve “trained” your customers, they only buy from you when you give them a discount. Most of the time, they will not pay full price, no matter how great the value you deliver. You said it best, why pay full price for something that you got for free or cheap before?

  2. I’ve enjoyed reading your articles on branding and business. Definitely food for thought. I found your site through one of Debi Brim’s websites.

    • Thank you. Debi is a wonderful person and an excellent baker. What got you started in blogging about cakes?

      • Initially, I was keeping track of cake tutorials by listing the links on my personal blog. Eventually, I felt I had way too many, so I created a new blog for them. After posting a few pictures, I was hooked!

        Why did you start blogging?

      • Ari, you’re right about how it can grow a life of it’s own. I started blogging for two reasons:
        1. To give clients and prospects how I approach marketing and branding
        2. Since our company advises clients on how to integrate social media with their marketing efforts, I should participate in it so our clients are assured we understand how each piece of social media is best utilized to help them reach their goals.

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