Recently, customers have flocked in droves to websites offering daily deals.
The business model for these sites varies by company, but the common
theme is a great deal that’s offered for one-day-only. This model has
proven extremely popular, drawing millions and millions of active users
seemingly out of thin air, and becoming one of the most compelling
success stories in the business world today. Companies like Woot and
Groupon have shown that the idea of simple online coupons with a
purchase window of a single day are incredibly attractive to consumers,
and can generate a massive amount of business for the seller offering
the deal. It’s not often that a promotional deal is so attractive to
buyers as well as sellers. Often, it’s a give-and-take scenario with
some mutual exclusivity. A promotion that the seller may love isn’t as
attractive to buyers, and vice versa. So why exactly are daily online deals so popular for both buyers and sellers?
Popularity Contest
It’s easy to see why daily online deals
are so popular with consumers. It offers an incredible value in the form
of exclusive savings on local and national products and services at no
cost to them. In the past, hugely successful companies have been built
on the idea of selling customers the access to money-saving promotions.
These have been in the form of books that contain coupons and vouchers,
or memberships to discount warehouses like Costco or Sam’s Club. These
businesses have been successful because smart consumers are able to
recognize that the small cost of joining one of these programs is
quickly offset by the savings they can realize on items they were going
to purchase anyway. What daily deal websites like Groupon have done is
to offer the same kinds of great savings, but at no cost to the
consumer. By eliminating the consumer’s cost, they’ve made it a
no-brainer and enjoyed incredible popularity.
What about revenue?
Of course, they’ve eliminated the cost
of these bargains by offloading it to the seller. So why then, do the
sellers love the model of daily online deals so much? It’s been reported
that after the cost of the discount, and splitting revenues with
Groupon, sellers have only broken even on many of their Groupon sales
promotions. If these promotions aren’t always bringing in massive
profits for the sellers, why are they so rabidly attracted to the model?
It’s simple; the sellers are drawing in an entire customer base that
would have overlooked them otherwise. It’s a longer-term strategy than
simply selling more of their product on a given day, and it’s incredibly
effective. A good example is a local day spa that is offering a full
day of spa treatments on Groupon for $100. Let’s say that the spa
usually sells this package for $200 (a similar price to their
competitors), it costs them around $45 or so to deliver the experience
to the customer. They’re going to have to split their revenues with
Groupon for running the sale, so after deducting $50 from every $100
package, the spa is only profiting about $5 on every sale. Odds are,
they’re going to sell a lot of packages, since they’re selling them for
half of the going market rate. The incredible benefit to the company is
not the actual sales, but the fact that the vast majority of people who
buy the package would otherwise have not considered purchasing a day at
the spa. When faced with such a great deal, however, they can’t resist
giving it a try. If the spa gives them a great experience, they’re going
to return, and the spa will see increased business in the long term.
While this is a specific example, and the daily deals model can and
often does generate great profits for sellers, it goes to show that the
deal itself can be an incredible form of marketing.
We have released Daily Deal extension which helps you create and manage deals for your site in the most professional way.
* This module allows you to create deal
for one or multiple products. The purchase step of deal is as same as a
normal product so all payment methods like PayPal, Moneybookers… are
supported.
* With Daily Deal, you are able to set the promotion time to be daily, weekly or for how long as you wish.
* The Deals could be shown on Daily deal page, Product page or Sidebar at your convenience.
