Currently a popular form of paid online advertising is deals of the day, sometimes known as social couponing. Daily deal services feature discounted gift certificates usable at local or national companies. These daily deals are often delivered to subscribers through their method of choice (often email or social media). In some cases, if the deal is popular with the community, it is made available for longer. In other cases, the deal is available on delivery to the subscriber. Daily deal sales from daily deal providers are expected to reach $1 billion this year (LinkedIn, 2011).

Groupon is one of the most popular daily deal services. Launched in November 2008, it has expanded to offer daily deals in many cities around the world. Groupon has since acquired numerous daily deal organizations and has grown to include European-based MyCityDeal (17 May 2010), the South American ClanDescuento (22 June 2010), the Singaporean, and the Japanese service and Russian (both on 17 August 2010). Given the growth in popularity of social couponing, new services have emerged such as Living Social. Industry experts forecast that large Internet-based companies like Facebook, Bing and Google will soon offer social couponing services to their audiences, providing the advantage of a broader audience reach for business (MRelevance, May 2011).

How the Revenue Model Usually Works

Daily deal suppliers offer discounts (usually 40%-60%) for products and services available in specific cities around the world. The daily deal company can take about half the revenue the coupons and vouchers generate. In some cases, merchants may take short-term losses while the deal is running in order to acquire long-term growth driven by the increased exposure and repeat business from new customers.

Who Should Use It?

Companies that use daily deal services are mainly direct sellers of hard goods and/or services. This includes restaurants, spas, outdoor adventure companies and services such as plumbers, roofers and house cleaners.

Fast-moving goods sold through a third party (indirectly) are not so easily sold through social couponing, unless the third party is prepared to adopt a social couponing strategy. For example, publishers and authors selling books through services such as Amazon, or music sold through iTunes or Walmart, are reliant on the infrastructure from the distributor. The distributor, in many cases, currently has programs that promote sales specials; they just may not be configured in a social couponing format. However, since we’re talking about the Internet, watch for more innovation to follow.

Does it Really Work?

John Lalonde recently ran across a daily deal for carting at a local carting racetrack — two for one for 20 laps on the course at a local raceway. He purchased the daily deal and took a friend with him to the track. They had the time of their lives, from a cart-driving perspective. It was such a great experience that they told their friends about it, shared images, and texted about it. The cart company received great exposure.

Says John, “I would go back again in an instant. It is definitely worthwhile to go, even at the full price.” John’s friend agreed on the fun they had. However, his attitude towards a next-time purchase is different: “It was a great time. I want to go again and bring other friends. I can’t wait ’till there’s another coupon offering.”

Research has shown contradictory findings on the value of daily deals to consumers and retailers:

  • Daily deal services have been proven to boost sales countless times.
  • Word-of-mouth effects for daily deals on Facebook can play a significant role in boosting sales for merchants (Groupon’s Hidden Influence on Reputation, MIT, 2011).
  • December 2010 data from the research firm ForeSee placed social media sites toward the bottom of online shoppers’ preferred promotional channels. Just 8% wanted to hear about discounts via sites like Facebook and Twitter, compared to 64% who thought email was the best way (“Are Consumers Interested in Finding Deals on Social Sites?” 2011).
  • A Groupon deal seems to have an adverse impact on reputation as measured by Yelp ratings. The number of reviews increased but average reviewer ratings lowered by a small percentage. (“Groupon’s Hidden Influence on Reputation,” MIT, 2011).
  • Repeat coupon offers are being purchased by merchants from daily deal suppliers, indicating that couponing may be having a positive effect on their business (“Why Groupon is Poised for Collapse,” Tech Crunch, Rocky Agrawal, 2011).
  • Today’s online coupon users tend to be affluent and highly educated. This is valuable input for marketers shaping the campaigns (“Online Coupons Reach Nearly Half of Web Users,” eMarketer, 2011).

This piece is excerpted from “The Digital Dollar: Sustainable Strategies for Online Success” by Joe Wozny. Available from FairWinds Press. Copyright © 2012 Joe Wozny. All Rights Reserved.