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

Posted by David Chism | Tue, Oct 22, 2013

 The Problem Consumers Don't See Coming with Coupon & Deal Sites
Today's DealBy 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!

About David Chism

David Chism started his business out of a passion for helping small contracting businesses grow, be more profitable and become better known to their target clients. One lifelong hobby of David is using techie gadgets. So this blog is a place where he writes about technology, marketing ideas, just for fun (humor), personal thoughts on small business and more.

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