Merchants Must Break Free From Daily Deal Site Hysteria

Following up on the April 4th post about the damage caused by daily deal sites such as Groupon, merchants continued to send feedback about the challenges they face.  Those who use daily deal sites express the following:

• Peer pressure to participate. Customers and prospects flooded by daily deals try out competitors.  Merchants afraid that lack of participation will hurt the business. A large restaurant chain VP noted, "Dammed if you do, dammed if you don't.  We need to raise awareness above the fray, but the prize for winning is a losing business model"
  
• Attraction of a low value, price sensitive customer base. Instead of attracting brand conscious, high value customers, merchants end up with bargain hunters.  Over time, merchants have had to raise prices to make up for losses with daily deal sites.  A high end spa owner complained, "I'm attracting the wrong customers and aggravating my loyal customer base.  Everyone now wants a bargain and we've got no more margin to give"
  
• Inability to negotiate favorable terms. A lack of transparency on terms results in higher takes of percentage of revenue. Merchants lack visibility and expertise to secure better terms.  CMO of a large hospitality chain stated, "The terms for the deals stink.  We need some pricing pressure to move the pendulum back towards the center".

New Daily Deal Auction Sites Create Win-Wins for Merchants And Daily Deal Sites
Auction sites such as Deal Umpire provide a market between merchants and daily deal sites.  These market places, if successful, will deliver two key benefits for merchants such as:

• Visibility in deal terms among various daily deal sites. Deal site profiles include key information such as revenue split, payout terms, subscriber reach, subscriber demographics, deal site business model, credit card fees, media coverage, marketing materials, and when a deal can be featured.
• Competition for daily deal business. The market place concept brings together multiple deal site programs into once place.   With competitive forces in play, merchants can drive pricing pressure on daily deal sites for lower revenue share and more favorable terms.

Merchants using a market place benefit with:

• 
  

  Reduced sales over head.

  A no to low cost entry point allows vendors to quickly reach a large pool of merchants.  Vendors can deploy sales teams to higher valued sales activities.
• Lower barrier to new marketplace entry.  Daily deal sites can tap into smaller markets and provide a consistent experience.  Advanced features such as bid customization allow tailored offers by merchants to prospects.

The Bottom Line:  Merchants Should Use Auction Sites To Ensure Transparent And Healthy Competition.

As the market matures, expect the transparency of deal sites to provide an equilibrium between revenue share and compelling marketing tool.  Further, daily deal sites will have to earn the merchant's business.  Transparency will also create new winners and losers among those who drive purpose built solutions by industry vertical, geography, and adjacent partnerships.  Merchants can expect service level agreements based on performance and impact to drive future discussions.
Your POV.
Does this strategy make sense? Will you change how you use daily deal sites? Will auction models improve your perception of daily deal sites? Ready to share your best practices?  Add your comments to the blog or reach me via email: R (at) ConstellationRG (dot) com or R (at) SoftwareInsider (dot) com.
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