What Bad News Means for the Future of Daily Deals

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Can offering up a deal through Groupon, Living Social and the like hurt a business’s reputation? That’s the implication of a September study conducted by Boston University researchers John Byers and Georgia Zervas and Harvard University researcher Michael Mitzenmacher. The profs found that putting a deal on Groupon and LivingSocial may augment Yelp reviews in number,  but that those additional reviews tended to reduce the company’s Yelp score by 10%. They based their findings on a survey of 2,609 LivingSocial offers and 16,692 Groupon offers across 20 cities and 56,000 Yelp reviews for 2,332 merchants. Those merchants collectively ran 2,496 deals–a decent sample size.

Looks pretty bad for the future of group buying right? Not so fast. The reputational risk could be a function of the ornery nature of the group-buying crowd. Interestingly, group deals that spread organically across social media channels such as Facebook tended to enhance reputation. To measure this, they looked not only at the deal listings on the deal site and Yelp reviews but also whether the deals had spread through viral and/or social media.

I have a couple of thoughts on what this means for the daily deal space. First, it may show that mass does not equal class. If a small business wants a certain type of audience, then really big group buying tools may not be the right way to get that audience. From my personal experience, highly target group buy offerings (like Blackboard Eats) are highly enjoyable for foodies like me. On the other hand, the scattershot offerings (Liposuction, for me? Aw shucks. I’m flattered!) that come from broader group deal channels are annoying. In other words, you get a lot more dabblers who see a big discount and push the buy button as opposed to people who actually are interested in that particular vertical. By selling to dabblers who are pre-disposed to bargains foremost, businesses may be setting themselves up for failure by pulling in less forgiving customers. (I’d also not surprised if these dabblers are also heavier Yelpers).

Second, these findings underscore the value of trusted intermediaries. I am far more likely to really enjoy a restaurant recommended to me by my friend who shares my food tastes. By contrast, I am far less likely to enjoy a restaurant recommend to me by nothing more than flowery prose from an over-employed poet at a group buying company. (Sorry, Groupon, I never bought the idea that your copy moves deals). The bottom line? Of course people like things their friends recommend more than things that randomly land in their inbox! Doh!

To their credit, Groupon and other sophisticated group buying sites are already moving to the local daily and real-time deal space and leaving this old model of mass-market deals behind. Bloomspot is putting in place merchant tools that supposedly ensure profitable deal offerings and provide better ways to close the sales loop. Groupon is building out more sophisticated offerings like GrouponNow (time-specific, geotagged deals) and loyalty programs that allow merchants to set per customer revenue targets with deals unlocked after a spending threshold is hit.

The fact that sending a mass email to lots of random people advertising a random business may damage said business’ reputation is not entirely surprising. But this news really speaks to group buying 1.0, not where the industry is going. And that future will be far more interesting with differentiated, personalized, time-specific and behavior inducing offers that take the genre out of the simple opt-in direct marketing phase and into a modern age of truly targeted marketing to qualified buyers.

Alex Salkever’s Personal Fight column appears every Friday on Street Fight.