Deal of the day (ecommerce)

Deal of the day (also called flash sales, one deal a day) is a type of ecommerce in which a website offers a single product for sale for a period of 24 to 36 hours. Members of deal of the day websites receive online offers and invitations in postal mail, email and social networks.

Established retailers, such as Amazon.com and Buy.com, feature a deal of the day item in addition to more conventional sales methods.

The deal of the day business model grew out of the 2009 recession and gained increasing popularity in 2010, highlighted by Google making an unsuccessful offer to buy the largest deal of the day business Groupon for a reported $6 billion.^[1] This offer not only raised public awareness of the deal of the day concept, but also led to increased investment interest in new daily deal startups. As of 2011^[update], deal of the day sites have continued to grow in popularity, while new fears have arisen over the longevity of the concept and financial viability of one day deals for small businesses.^[2]

Business model overview

The deal of the day business model benefits both retailers and consumers as retailers build brand loyalty and while quickly moving surplus inventory.

The majority of deal of the day sites work directly with local businesses and online retailers to develop a deal offering which includes a significant discount against regular RRP for a particular product. Using the group buying methodology a minimum and maximum number of deals are made available for sale within a period of time. Typically, deal of the day sites segment merchandise by specific designer sales.^[3] Traditionally this period is 24 hours, although increasingly daily deals websites are offering alternative, longer deal formats to maximise profits and allow them to run multiple deals in a single location concurrently.

When a deal goes live on the website past customers and email subscribers are sent the offer. Customers purchase the deal on the deal of the day website (rather than directly from the supplier). Crucially this means the deals website retains customer data rather than the company offering the deal.

Once the minimum number of deals have been sold via the website customers' credit cards are charged and the deal is delivered as an electronic voucher which can be redeemed from the supplier. Vouchers purchased from daily deals websites typically expires after a certain period of time.

History

The online "private sale" industry emerged in 2001, when French Entrepreneur, Jacques-Antoine Granjon, founded a company called Vente-privee.com in France. The company was developed in an online environment to host sales of designer brands for members, with reduced prices. These sales include a diverse selection of product categories: fashion, accessories, toys, watches, home appliances, sports equipment, technology and wines. Copying the model set forth by Jacques-Antoine Granjon, several U.S. "private sale" businesses have been founded in recent years.^[4] The deal of the day concept gained popularity with the launching of Woot.com in July 2004 (although that itself was a modified version of earlier dot-com-bubble sales by sites like uBid). By late 2006, the deal of the day industry had exploded, with more than 100 deal-a-day sites in existence. In November 2008, Groupon entered the market and became the second fastest online company to reach a billion dollar valuation.^[5] Deal of the day websites are poised for a major expansion in US in the coming years. According to a study released by BIA/Kelsey, gross revenues are projected to grow from a current $873 million to $3.9 billion by 2015.^[6]

Other notable online businesses including Facebook^[7] have launched and later withdrawn their own daily deals offering websites. The rise of social networks such as Myspace and Facebook has accelerated the growth of daily deals sites with popular deals spreading virally via these online networks.

Industry outlook

While 2010 marked a year of rapid growth, more recently weeks the daily deal promotion industry has begun to level off considerably. Regardless, revenue forecasts for the industry continue to foresee strong growth. By the end of 2011 analysts predict that industry revenues will reach several billion dollars at an increasing at annual rates in excess of 100%.^[8]

The increase in venture capital injections and startup launches also exemplify the continued growth in the industry. Some examples of such activity are the recent launches of Facebook, Amazon, Google and AT&T’s daily deal sites. Groupon is also continuing on its track to file for an IPO.^[9]

Despite positive growth figures, there are studies that suggest that there is a structural weakness to the industry that will have to be addressed in the coming years. These shortcomings fall on both the consumer and merchant side. For example, deal users very rarely return for a full price purchase and large percentage of businesses indicate their disinterest in running another deal in the future. For these reasons, the industry will require some testing and evolution and these daily deal sites will have to settle for lower shares of revenues from businesses compared to their current levels (20-50%) which are not sustainable^[10] It is unclear whether industry diversification, increasing competition, and larger revenue shares for merchants will disrupt the major players or cannibalize the industry as a whole.^[11]

Marketing

Most businesses who run one day deals via daily deals websites consider it a marketing activity rather than a means of generating profit. The benefit for businesses is exposure of their product or service to a large number of customers in a short period of time. Studies show that there is evidence of significant exposure value (increase in sales because of exposure received) from running a one day deal. One small business reported an increase in exposure value of approximately 140% over its baseline sales over a six month period.^[12] Beyond mere exposure, businesses hope to capitalize on the long-term lifetime value of new repeat customers, representing a shift from traditional marketing and advertising. While the primary purpose of deal of the day sites is as an e-commerce platform, they can also serve as marketing and media platforms.^[13]

A study of small businesses revealed that on average, daily deals spending is the single largest expenditure in a company’s marketing budget at 23.5% which translates to average annual spending on daily deal programs of $46,530. These numbers compare to other marketing expenditures such as email promotions (16.1% or $31,878) and online search advertising through programs such as Google AdSense (14.7% or $29,106).^[14]

Profitability

As mentioned, businesses run daily deals to gain exposure not revenues. When the deep discount and payout to the deal of the day site is taken into account, the business running the promotion can often be left with insufficient revenues to reach profitability. Another negative effect on profitability is the type of consumers attracted by daily deals. Oftentimes the those who purchase a daily deal are “price-sensitive deal-seekers” who are less apt to return to the business in the future to buy at full price.^[15] Regardless of these facts, studies have shown that for small businesses and start-up companies, daily deals can result in a substantial 30% lift in profits compared to baseline levels.^[16] A survey of businesses who ran daily deals in the past year revealed the following data on the incidence of profitability: on average, over half (55.5%) made money on their daily deal promotion, whereas just over a quarter or 26.6% lost money. The remainder, 17.9% broke even, neither making nor losing money.”^[17]

Communication tools

One of the most notable features of the deal of the day format is the use of email marketing to promote new deals to past customers or other subscribers. The practice of sending daily or multiple daily email messages to mailing lists to promote new deals has been widely criticised^[18] by email marketing professionals and users. However evidence would suggest this aggressive strategy is affective at generating sales and visitors can sign up to receive an email every day or week to be notified of the deal. Most large daily deal websites publish their deals via RSS feeds, so that anyone with an RSS Reader can view the most recent deal.

Common products

• Special events
• Tourism-related services
• Education services
• Health and fitness services
• Medical services
• Auto services
• Retail store
• Salon and spa
• Restaurant and bars

Affiliates

Most daily deal websites have an affiliate marketing program, which allows third party websites to be compensated monetarily for referring visitors. This has increased the presence of the deal of the day websites on the Internet as well as a number of aggregation websites. These websites, such as Yipit, display syndicated offers from a number of deals sites. The service offers customized emails based on location and which categories of deal a user is interested in receiving.^[19] The aggregator takes a percentage of any sales made by the deal site through their affiliate program.

Some daily deal websites don't work with aggregators. For example, Livingsocial does not share profits for business that derives from aggregator sites. In Australia, where the daily deals industry is segmented with six major players, aggregators are treated as competitors.^[20]

Online forums

Initially, Internet forums were considered beneficial to the deal of the day model. Because forums are generally uncensored, even when posts negatively impact products being sold or the reputation of the seller, they can serve as unpaid salesmen who explain the features of a product to potential customers. Customers benefit as they make more informed choices. The sellers benefit as customers that would be disappointed with a product and might seek to return it or require tech support simply do not buy it.^{[citation needed]}

The use of Internet forums by deals websites has been fazed out as the medium has developed. Most pure play daily deals websites no longer feature a forum on their websites.^{[why?][citation needed]}

Example websites

Some example deal of the day websites are 1saleaday, 8coupons, AppSumo, Bergine, BuyWithMe, Google Offers, Groupon MyCityDeal, Jasmere.com, LivingSocial, Newegg, OfficeArrow, Plum district, Pop Market, Sheeel, StealTheDeal, TeamBuy, Thrillist, WagJag, and Woot.

See also

References

1. ^ Kincaid, Jason (2011 [last update]). "Confirmed: The Groupon/Google Deal Is Off". techcrunch.com. http://techcrunch.com/2010/12/03/confirmed-the-groupongoogle-deal-is-off/. Retrieved November 10, 2011. 
2. ^ Dholakia, Utpal M. (June 13, 2011). "How Businesses Fare with Daily Deals: A Multi-Site Analysis of Groupon, Livingsocial, Opentable, Travelzoo, and BuyWithMe Promotions". Social Science Research Network, Working Paper Series. http://ssrn.com/abstract=1863466. 
3. ^ Sheft- Ason, Jessica. "Gilt Groupe Launches Editorial Site For Men, Competes With Amazon", Forbes, August 9, 2011, retrieved October 3, 2011
4. ^ Blodget, Henry. " Flash-Sale Leader Gilt Groupe Raising $80-$100 Million At A ~$1 Billion Valuation" . Business Insider, February 21, 2011 retrieved October 2, 2011
5. ^ Steiner, Christopher. “Meet The Fastest Growing Company Ever”, Forbes Magazine, August 30, 2010, retrieved October 1, 2011
6. ^ Krug, Frances Mary. "Groupon And Other Deal-Of-The- Day Sites Booming". Search Marketing Standard, March 3, 2011, retrieved October 2, 2011
7. ^ Barr, Alistair. “Facebook ending Deals product after four-month test, Reuters, August 26, 2011, retrieved October 1, 2011
8. ^ Dholakia, Utpal M. and Tsabar, Gur.“A Startup’s Experience with Running a Groupon Promotion”, SSRN, May 1, 2011.
9. ^ Dholakia, Utpal M., “How Businesses Fare with Daily Deals: A Multi-Site Analysis of Groupon, Livingsocial, Opentable, Travelzoo, and BuyWithMe Promotions”, SSRN, June 13, 2011, retrieved October 1, 2011
10. ^ Frommer, Dan.“Ignore The Groupon Hate: Group Buying Isn't Dying It's Just Getting Started”, Business Insider, September 1, 2011, retrieved October 2, 2011
11. ^ Farrel, Maureen. “Are Next Generation Groupons Potential Disruptors or Cannibalizers”, Forbes, April 30, 2011, retrieved October 2, 2011
12. ^ Dholakia, Utpal M.; Tsabar, Gur (May 1, 2011). "A Startup’s Experience with Running a Groupon Promotion". Social Science Research Network, Working Paper Series. http://ssrn.com/abstract=1828003. Retrieved November 10,2011. 
13. ^ Cain Miller, Claire. Bargains on Flash Sale Sites Serve a Long-Range View “Bargains on Flash Sale Sites Serve a Long-Range View”, New York Times, June 19, 2011, Retrieved October 1, 2011
14. ^ Dholakia, Utpal M., “How Businesses Fare with Daily Deals: A Multi-Site Analysis of Groupon, Livingsocial, Opentable, Travelzoo, and BuyWithMe Promotions”, SSRN, June 13, 2011, retrieved October 1, 2011
15. ^ Dholakia, Utpal. “What Daily-Deal Shoppers Want”, Forbes, Septemebr 23, 2011, retrieved October 2, 2011
16. ^ Dholakia, Utpal M. and Tsabar, Gur.“A Startup’s Experience with Running a Groupon Promotion”, SSRN, May 1, 2011.
17. ^ Dholakia, Utpal M., “How Businesses Fare with Daily Deals: A Multi-Site Analysis of Groupon, Livingsocial, Opentable, Travelzoo, and BuyWithMe Promotions”, SSRN, June 13, 2011, retrieved October 1, 2011
18. ^ Storey, Phillip (2011 [last update]). "Groupon: your email marketing is failing your fans". econsultancy.com. http://econsultancy.com/us/blog/7291-groupon-your-email-marketing-is-failing-your-audience. Retrieved November 10, 2011. 
19. ^ Saint, Nick. “Groupon Aggregator Yipit Raises $1.3 Million In Venture Funding”, Business Insider, June 30, 2011, retrieved October 2, 2011
20. ^ Robert, Liu. “Daily revenues and market share of Australian daily deals sites”, Deals Extra, November 8, 2011, retrieved November 8, 2011