Lessons Learned From the ‘Daily Deal’

If 2012 was the year the “daily deal” (at least as a standalone phenomenon) took a dive, 2013 was the year the industry moved on. The two largest players struggled but adapted, with LivingSocial nabbing funding in time to cover a number of big losses and Groupon bouncing back from a tumultuous January and the subsequent firing of its founder. Now, with Eric Lefkosky permanently at the helm, Groupon has moved away from the ephemeral flash sales model to a more recurrent approach to local discounting.

Today, it’s worth taking a moment to look back and draw a few lessons from where the daily deal went wrong and what a sustainable offer model might look like.

When Groupon introduced the “daily deal” five years ago, shoppers were promised great deals for neighborhood stores and restaurants. Meanwhile, merchants were promised a better way to attract new customers, the holy grail of local marketing. The daily deal category exploded, spawning a host of followers such as Bloomspot, LivingSocial and Google Offers.

When daily deals first became available, many consumers jumped at the chance to get significant discounts at their favorite local businesses. But the novelty quickly wore off, as shoppers soon had to sift through a flood of untargeted offers that took a lot of work to redeem and came with a bevy of rules and restrictions. On the merchant side, daily deals have not provided the ROI merchants were hoping for, especially on the small business front — they have not been proven to attract the right new customers nor to offer a way to measure results.

What followed was an onslaught of articles exposing local merchants’ dissatisfaction with daily deal providers, and data to back it up. A 2011 survey of local merchants who used Groupon found that 82 percent of respondents were unsatisfied with repeat business.

Subsequently, the bigger players moved on. Groupon’s “third-party” revenue, for instance, which measures its daily deal business, has been on the decline since mid-2012. The company has been working to reinvent itself and diversify its revenue streams since then, exploring a point of sale (POS), mobile checkout and other services. It most recently launched a new category on its online deals marketplace that offers digital coupons, promotion codes, giveaways and samples, dubbed “Freebies.” Other daily deal companies are following suite, including LivingSocial, which has been speaking out lately about diversifying its business as well.

Five years later, and the local commerce industry is still searching for something better. So what’s next?

According to a study conducted by Street Fight, the two most important factors for merchants evaluating hyperlocal marketing campaigns are the ability to attract new customers and ensure the right people are being targeted. Since daily deals are falling short in accomplishing this, what hyperlocal marketing avenues should local merchants explore?

Taking into account the lessons learned, here are some key ingredients of winning hyperlocal marketing tools:

• Keep it simple – for everyone: Small business owners don’t have the time, resources or technical expertise to implement complex hyperlocal marketing campaigns, especially not ones that require new POS infrastructure and staff training. In the end, simplicity wins out for the merchant, but also for the shopper. Putting work on the shoulders of your shopper, whether it’s a new app to download and register for, a voucher to print or a loyalty card to find in a stuffed wallet, will make it less likely that the offer will be redeemed.
• Make it targeted: Take advantage of advances in marketing data analytics, which has extended small merchants valuable consumer insight tools previously only available to larger retailers, and use the data to fine tune your campaigns and offers. This will go a long way toward helping you bring in the right customers for your business and avoid the dreaded “one and done” redemptions many saw with the daily deal.
• Make it measurable: Facebook, Twitter and other social media marketing channels can create a nice branded platform for engaging with customers but take a lot of resources to maintain and are difficult to attach to real ROI. Consider options that provide data to help measure key KPIs, such as amount of new customers attracted, increase in average basket size and amount of repeat business generated. This way you know exactly what you’re getting in return for your marketing efforts.

Ed Braswell founded edo in 2007, launching an advertising technology company headquartered in Nashville, Tenn. Prior to edo, Ed was president and CEO of Link2Gov Corporation, which was acquired in 2005 by Metavante, now Fidelity National Information Services. Ed also serves on the boards of FactorTrust and MyPaynet.