Ellington

I couldn't help but notice that it was USA Today -- owned by the same company that owns the Clarion-Ledger and, of course, the extraordinarily creatively named "Deal Chicken" -- that published the story Daily Coupon Deals May Not Work For Buyers, Sellers over the weekend.

The story is informative for anyone who hasn't yet done the deep dive into the problems that can be created for small businesses by the likes of Living Social and Groupon (and DealChicken) where a combination of high volume, low revenues and a fickle deals-focused audience can spell real problems for businesses that don't realize what they're getting into.

The daily deal business model only rarely makes good economic sense for retailers and restaurateurs, according to an analysis provided to USA TODAY by the retail analytics firm Applied Predictive Technologies (APT). Reports of companies that claim daily deals put them out of business, or came close, are increasing.

The problem, fundamentally, is called "math." If a $25 meal is sold for $12.50 via a deals site, that's one thing. The real problem comes in the way that they split the revenues -- generally, the deals company takes 50% of that $12.50, leaving the restaurant with $6.25 to fulfill that $25 coupon. If the restaurant or retailer operates in such a way that it's costs are higher than 25%, they're losing money with each sale. And a lot of businesses do; even their marginal costs (e.g. the cost of "one extra sale" if you already have employees, supplies, rent and the light bill is paid) can be well over 25% for a single sale.

Maybe that would be OK if (a.) the coupons were only redeemed every so often and (b.) the deal somehow helped to create demand for return trips at the full $25 (or whatever their regular prices are). Unfortunately, the opposite can happen in both cases.

Whether a daily deal actually paid off for a business requires a complicated series of calculations that he says a typical small business is not inclined to do. Most, particularly restaurants, "see empty tables and want to fill them," he says.

It's an interesting story -- check it out. And good for USA Today for running it, even if their mothership is one of the perpetrators. (Not that Deal Chicken is actually mentioned in the story. ;-)

Previous Comments

ID

167433

Comment

Stabbed by their corporate daddy. Ouch.

Author

DonnaLadd

Date

2012-03-19T18:14:12-06:00