The Problem Consumers Don't See Coming with Coupon & Deal Sites

By now, most Amer­i­cans have seen or even used one of the pletho­ra of ​“local deal” sites. Groupon was the com­pa­ny that made the local deals super pop­u­lar among young women, stay at home moms and oth­er coupon shop­pers. It was a great con­cept upon its incep­tion for Groupon. Groupon, as the mav­er­ick of this mar­ket­ing idea, trig­gered some­thing that con­sumers real­ly liked: a deep dis­count on ser­vices and prod­ucts they want­ed, not nec­es­sar­i­ly need­ed: flow­ers, mas­sages, food, and more. The busi­ness­es using this deal sites ben­e­fit­ed because they received new cus­tomers in the door almost overnight with vir­tu­al­ly no mon­ey out of pock­et! It all sounds good right? Increase your busi­ness with­out spend­ing a dime! Or is it? Today we have even more choic­es that Groupon. Now Ama­zon has jumped on the band­wag­on with their ​“Ama­zon Local.” Ang­ie’s List offers the ​“Big Deal” and ​“Store­front” which are deeply dis­count­ed ser­vices and prod­ucts (40 – 50% or more some­times). Liv­ing Social is anoth­er big play­er as well. So here is the prob­lem I see com­ing quick­ly, but that con­sumers might not real­ize.

Price Increas­es Com­ing Soon

My dad always said noth­ing in life is free! Sound famil­iar? Well we con­sumers think that we can coast along on super deals and free­bies. Yet I guar­an­tee that these super sav­ings we see won’t last for long. Oh the deals will keep com­ing, don’t get me wrong. Ama­zon Local, Groupon, Ang­ie’s List are not going to stop offer­ing these dai­ly deals. Yet the busi­ness­es that are using these ser­vices will soon have to increase their prices in order to jus­ti­fy giv­ing a big dis­count. So this will cause an infla­tion in the prod­ucts and ser­vices con­sumers are want­i­ng right now. Why do I think this? I’ve heard from a num­ber of small busi­ness­es that lose mon­ey on most deal ser­vices. They are pay­ing to get cus­tomers. So once the deals are sold, anoth­er big chunk of the rev­enue goes direct­ly to the deal com­pa­ny, some­times 40%. Exam­ple: A $100 gut­ter clean­ing deal sold, $40 goes to the adver­tis­ing com­pa­ny and $60 goes to the gut­ter com­pa­ny. That can be a good thing, to buy or take a slight loss in prof­it, if they have a good mar­ket­ing plan to stay in touch and increase repeat busi­ness. In this blog, I’m not focus­ing on all the ben­e­fits (there are a few!!!). I just want to point out that con­sumers need to be care­ful that the more they buy these deals they are just mak­ing the price of those prod­ucts and ser­vices less valu­able. It in a sense cheap­ens the brand. I’ve seen deals to paint a room be as cheap as $99 with two coats. I know that a pro­fes­sion­al painter can­not paint a bed­room with two coats for even $200 in most cas­es. So when a con­sumer begins to see these $99 deals every­where he turns, and he goes to get a quote to paint a bed­room, he will just assume the painter’s prices have a high markup and can be dis­count­ed. Here are the facts. A paint com­pa­ny does not have a lot of prof­it built into the bid. The num­bers I’ve seen range from 5% to as high as 20% (when they are super busy). The stan­dard markup is prob­a­bly 10%. That is real­ly not a lot. Think of it this way, you hire some­one to paint for you all day for $500 and the busi­ness prof­it is not much more than $50. Think of it as a 10% tip for good work! The deals we con­sumers see these days are fun to explore and pur­chase in most cas­es. Typ­i­cal­ly you can live with­out most of these deals: they are more wants than needs. This is a word of cau­tion that most of these busi­ness­es are not mak­ing mon­ey on the deals — in fact, they might not even be cov­er­ing their costs. No busi­ness can keep that up. They will have to raise prices or cut costs by offer­ing infe­ri­or ser­vices. What do you think? Feel free to tell me I’m wrong! I love a good discussion!