Late last year BIA/Kelsey predicted that the daily deals industry would generate revenue of $3.6 billion for 2012. While consumers may still interested in great deals and enjoy purchasing them, dedicated deal operators are finding it tougher to grow profitably. Some analysts believe the industry is due for a shakeout this year.
The industry leader, Groupon, is competing hard with the likes of LivingSocial and Google Offers. While there have been a few high profile failures, like Facebook Deals, the pureplay operators may be running into more problems other than look-alike competitors. One difficulty is that a significant number of merchants have decided that running these offers does little to help the bottom line in the long run. Only 3% of businesses in one recent survey believe that the deals bring repeat customers.
There is a low barrier to entry for this business model. All a potential competitor needs is an innovative idea and a list of subscribers and marketers to begin churning out deals. Many marketers are realizing that they can run daily deals without involving an expensive 3rd party which takes a cut of the action. For example, a new BankAmeriDeals program encourages merchants to offer deals and discounts to account holders as they review their statements online. Customers can keep the copy of the electronic offer and use it when they visit the merchant. Consumers like this arrangement because there’s no need to pay up front and no tight time limit.
As consumers continue to shop and pay with their mobile devices, more local businesses may want to reach shoppers directly, especially with the help of their local media companies. This situation may result in more creatively structured deals that will cut out pureplay companies.
In any case, the original business model for daily deals is likely to change. Some expect that having local salespeople working for a national organization may not be cost effective. Others believe that merchants will pull back on deep discounts and try alternate and less expensive models, perhaps with credit card partners, to build loyalty. As for the daily deal industry outlook, BIA/Kelsey analysts expect to revise projected revenue numbers down this year.
For customers who have enjoyed the social nature of deals – things may still be social but the deals may not be as deep or as frequent going forward.[Source: Heine, Christopher. Adapt-or-Die Time. Adweek.com. 10 Mar. 2013. Web. 18 Mar. 2013]