Consumer belt-tightening has fueled the popularity of “daily deals,” the online craze that has turned Groupon and LivingSocial into highly anticipated IPOs. These two companies have now been joined by countless look-alikes, all offering deeply discounted products and services from restaurants, salons, and other businesses. More recently, travel deals have also been offered.
If you haven’t taken advantage of Groupon, LivingSocial, or a similar service, here’s how it works. You receive an email offering you a deal — for example, a local restaurant offers $30 worth of food for $15. You buy the deal at the discounted price and receive a certificate that you redeem at the restaurant before the stated deadline. You are encouraged to share the deal with your friends.
These deals seem to be a win-win: The consumer gets a substantial savings, and the establishment gets an influx of business. But it isn’t quite that simple. While the companies that run the deals tout their successes, there is some controversy surrounding the programs. Some participating retailers see a dramatic increase in business, especially when the deal is first offered — so dramatic that they cannot handle the volume. Some marketing observers suggest that the volume is, in fact, short-lived; they claim deal-hungry consumers are unlikely to be repeat customers.
But there’s another more subtle question: What kind of impact does participating in a deal program have on the brand? While discounting has become a widely used and accepted retail practice, it does attract a consumer who is looking for a bargain. In fact, retailers who regularly discount their products and services are known as “value brands.”
Here are three potential downsides to daily deals in terms of brand impact:
1. The participating business loses exclusivity.
When a restaurant, salon or other retailer participates in a program, it becomes one of many retailers. The companies running these deals are all looking for many local businesses to participate. When a business signs on, it is effectively competing for the same group of customers in a local area. This has the potential to dilute the brand because the business is now just one of a number of discounters.
2. The deal could damage an upscale brand’s image.
What happens if a retailer who participates in a deal is regarded as an upscale brand rather than a value brand? Suppose, for example, it’s a restaurant that has the reputation of being a fine dining establishment. Could participating in the deal actually undermine the restaurant’s brand image and make it appear “cheap”? Does participating in a deal suggest that this restaurant’s prices were too high to begin with? A business may do less damage to its brand by offering customers a frequent diner or buyer program rather than participating in a discount deal.
3. Business resulting from the deal could be short-lived.
The deal may result in a quick increase in revenue; however, the business pays a price, both with the deep discount to the customer and by paying a fee to the deal company. Consumers who are already customers of the business may take advantage of the deal, so the business is losing money on what would have been a repeat sale. As for new customers, these individuals may be taking advantage of the deal because the price is right — but even if they have a good experience, will these customers come back again and again? Repeat customers, after all, are what makes a business successful.
The use of daily deals is still too new to determine the long-term effects of this promotional strategy on a business. But it makes sense for a retailer to carefully evaluate a deal before participating in it. Consider the monetary investment and the ROI and compare it with other forms of marketing, such as advertising. Also take a long, hard look at the potential impact the deal might have on your brand.
Barry Silverstein has over 30 years of experience in branding, advertising, and marketing. He ran his own direct and Internet marketing agency for two decades. He is a consultant, professional freelance business writer and the author of the new eGuide, Branding 123: Build a Breakthrough Brand in 3 Proven Steps. Branding 123 is available for $2.99 at the Amazon Kindle store, for the nook, iPad, and at Smashwords.com in any eBook format. More information is available at