Has anyone tried the concept where the "deal" is that you go, name the site, and get a coupon giving you a deep discount the SECOND time you go back to that store? That would seem to make more sense. Because everyone that the store gives the deal to, has actually paid full price once. And wanted to go back. And if you've been twice, you're more likely to go 3x. And furthermore most of the failed leads were a sale, so nothing was lost.
I learned early on with my company that when people say things like "give me a deal - I promise I'm going to be your #1 customer if you give me a discount for my first purchase" that the best (for me) possible response is: "How about your pay full price now and the next time you come back I'll give you that 20% off you're asking for." Those that bite actually become loyal customers and appreciate it. Those that don't probably wouldn't have come back anyway.
And, btw, I learned the hard way that 99% of those "future #1 customers" never came back - even when I caved and gave a discount. Hence the revised model.
I don't know their margins, but I doubt a 20% discount has them losing much on that item.
Daily deal sites that offer a discount coupon at a price to the consumer which they have already negotiated a steeper discount for themselves, while cheaper for the discount site, is too cheap for comfort for the vendor.
This is a negative incentive for the vendor to keep going with with discounts, thus reducing inventory. further, the discounts are typically on ephemeral things that people dont NEED but just want.
The model should be flipped a bit: offer progressive discounts on repeat business. i.e.: 20% off on first visit, 30% on second, 50% on third - etc.
Incentivise repeat business.
(I know at the budget conscious end of the cafe/coffee business, the "buy $n, get the $n+1th coffee free" cards do pretty well around here. Not so much in specialty coffee places though, most of them do a good job of giving free coffee to their regulars pretty often. I rarely pay for espresso shots at any of my regular cafés if I buy them at the same time as a latté/piccolo/cappuccino…)
Punch cards are the original loyalty program, but I'm not sure how well they work for new customer acquisition.
For us, we solved this problem for bars, who have this really specific opportunity/problem where when they really need to fill up their bars at very specific times, when they're empty but didn't expect to be. The reasons are too numerous to mention, but it's something every single bar owner will tell you if they've thought about it at all.
However, other industries have other problems, and DAILY Deals solve so few of them. From our analysis, massage therapists and similar businesses (luxury, high margin, service based companies) were the only ones who benefitted across the board.
The problem is that it rarely generates repeat customers and/or customer loyalty - they tend to generate customers that come once, when they have a coupon, and never come again.
So unless your business is high margin, you're almost guaranteed to lose money from daily deals.
Thus, it's very good for things like paintball and skydiving and very bad for restaurants.
Daily deals works by drastic price cuts, the end. That means it costs the merchant far more than just what they pay the middleman. The middlemen can't charge more than pocket-change for the service or it just don't work.
So the future as I see it for daily deals sites is small companies making decent money charging huge numbers of businesses tiny commissions to promote their sales through largely automated platforms. It's perfectly suited to a ten-man company, which is why I personally think the over capitalized megacorps are doomed.
Give the market two to three years to consolidate and reach a sustainable level that doesn't overwhelm or burn the merchants and end consumers.
These can bring in a short term influx of customers but unless the small business has some sense about how to convert those "daily deal" people, it's just blowing money.
In the end, daily deal sites are just another marketing channel. It helps to bring people in but if you can't convert, your ROI will ultimately be negative. This isn't something that small businesses can't understand, it is just not how they view these sites... they only see dozens and dozens of people coming in the door.
I tend to think there's nothing wrong with them other than an over-saturation of the market and a prevailing attitude that says all you need is a sufficiently large mailing list to win. But that's just my outsider's view.