What's the Big Deal? How Daily Deal Sites are Bad for Business

The latest dot.com startup craze to sweep the globe is undoubtedly the growth of daily deals sites. Groupon led the way as the fastest growing company in history, others have followed suit in a bid to make a quick buck. 

Struggling businesses, eager to get bums on seats, have thrown traditional marketing values firmly out of the window in a bid to buy the customer: at any price. And when it comes to daily deals sites, it's a heavy price to pay. 

For the customer, it's a great deal. Savings in excess of 60% - and you can't deny that it's driving purchases that would have otherwise not been made.

But for business in general, it's bad news. Very bad news.

The costs of marketing are roughly between 70% - 80% of revenue. How many businesses can operate AND turn profit when 80% of their cost base is a marketing cost? Very few I would think. 

Compare this to a "traditional" marketing approach of spending roughly 10% of turnover on marketing activity (and that's what I would recommend for a start up who needs to spend just a little bit more). See, business forgets that marketing is simply the process of buying a customer. And savvy businesses know that you make money when you buy and not when you sell. In other words, buying as frugally as possible is the recipe for successful business practice.

If you don't believe me, watch any episode of The Apprentice and note the near obsessive attention to purchasing costs applied by Lord Alan Sugar and his aides. Costs which, on more than one occasion, have been the difference between success and failure of a task. 

But these sites don't care about business. They care about making money. Their business model is sound. You make the product (at your cost), you give it to them to market, they'll slash your retail price to something undeniably palatable (not profitable), and they'll take half the proceeds.

They don't negotiate. They pretend to, but really a few percentage points here and there will not make a massive difference to either them or to you.

Their terms and conditions are anti-competitive. Try and suggest amendments to their contract and all hell breaks loose. Ummmmm, last time I looked a contract was meant to be an agreement between two entities. Emphasis on the word agreement.

They like to dictate the price (and therefore the discount). I've had it suggested to me on several occasions that £19 would work better than £21, or would bring it into line with competitive offers. In any other industry, we'd call this price fixing and report them to DBERR. 

And even after all that, even if your product or service is great, if you are even slightly off the beaten track, they'll make the decision that their customers are unlikely to travel to get it, and exclude you from the party. Whatever happened to the concept of free market? This is a level of screening that is ALL about generating the maximum profit for them and nothing to do with the customer whatsoever.

Now, I'm not advocating that businesses should avoid daily deals sites altogether. They can have their uses in driving new customers to the business. However these should always be part of a wider marketing mix, ideally with other marketing activities that generate positive returns on investment and cost a lot less. 

There's room in this crazy developing discount market for a sustainable operator to come in and deliver. However everyone's currently off on a "me too" escapade - publishing giant DC Thomson contacted me last week about their new Beezer Deals which will launch in January. Their business model? Exactly the same as Itison and LivingSocial. Their unique offering? The ability to to advertise the deal in their daily print titles. I can barely contain my excitement.

In the same hour, DiscountTown also contacted me. Yet another discount site. Yet another similar business model.

Where's the innovation? It's not enough just to draw a pretty logo, stick it on a website and call yourself the next big thing. Yawn. Where's the true differentiation?

Businesses are getting much savvier when it comes to daily deals sites. They've been round the block a few times now and know the pitfalls and the questions to ask. They want the reach of these discount sites, but not the costs. They are trying to negotiate deals that work for them. They are walking away from deals that are not going to work for them. That suggests to me that this media is about to grow up - it's no longer about getting business at any cost, it's about strategic, effective marketing activity. 

And their growing pains are evident.  Every week I receive desperate phone calls from all the main operators trying to get my clients to give them offers to sell. They are crestfallen when I say no. 

With maturity, comes wisdom, and it's only a matter of time before a wise operator looks at the business model of these daily deals sites and recognises it is ultimately flawed. It's simply not sustainable. For businesses to survive, they need to make profit. Profit will simply be unattainable if your marketing costs amount to 80% of turnover. 

This starts a viscious downward spiral. Less profit = less business development = less businesses = less jobs = less customers = less. Just less.

I really hope someone's going to jump into that space and soon. Before it's too late.

How's Business for You?

This is a question I've been asked daily in the last month. Mainly by other business owners.

And some funny things have happened in response to my answer.

Business is good for us. We've had our busiest year (ever), we're recruiting, expanding and continuing to develop. The future is looking rosy. When we tell people this, a look of relief comes over their face and they whisper in hushed tones "Us too."

It would seem that in amidst this recession that there are a good many businesses who are doing very well indeed. Businesses who are struggling (in a good way) to keep up with demand. Businesses who are expanding, employing and charging their way through the recession.

But these businesses are, for some unknown reason, scared to shout about it.

The media is piled high with failure stories. Shop closure after shop closure. It's almost as if success in this volatile market (one which is clearly full of opportunities for the most versatile of entrepreneurs) is a dirty word.

So come on, if you are doing well, let's shout it from the roof tops. It's not a crime to perform well during a recession - in fact it's a good sign. It's a sign that things are not as bad as they seem. That the "green shoots" of growth are, indeed, there. That it's not all doom and gloom. That people and businesses are still spending money (despite numerous reports to the contrary).

The pundits don't always get it right. But who can blame them if these success stories are all being kept hush hush?

The Digital Dandies: A New Consumer?

I went shopping yesterday. Not something I do very often I have to admit. And something very interesting happened. Everywhere I went, absolutely everywhere, was offering me something for nothing.

In Boots, I was given two vouchers - one offering a lot of free loyalty points if I spent just £35 in store, the other was a money off voucher for a range of products. In addition to this, the purchase I made was a 3 for 2, and the young girl at the checkout took three minutes to run back to the shelf for me to get me my "free" paper gift bag that goes with them. God forbid I should miss out. 

Fast forward to Tesco, and I'm now the lucky recipient of two (not just one) money off petrol vouchers. My husband was momentarily tempted by a "2 for..." offer in Tesco until I pointed out to him that "2 for £1.20" wasn't that great an offer when the price of the individual product was 63p. A 6 pence saving: hold me back.

These kind of heart warming rewards from national retalers are just fine and dandy. But it worries me that they just aren't getting it. 

These offers are primarily about survival and driving cash flow income to a business. The short term loss, they believe, will ultimately be offset in the long term by the gain of keeping a customer for life. But is there such a thing anymore? Marketers had better hope so. For their sake. 

There is one stark fact that marks out this recession from others: the market has changed considerably. 

While businesses have had their heads down trying to figure out whether to stand still, give up or move forward, the market has marched forward at an alarming pace. Shifting it's media consumption irreversibly, changing its spending habits forever, re-prioritising its needs and altering its consumption patterns.

If you're not sure this is the case, ask yourself the following questions:

Do I buy music from a store in a CD format or do I download/access it in a digital format for a fraction of the price?

Do I access news via a printed newspaper which I've paid for or do I hop online and get it for free?

Do I visit company websites anymore or do I prefer to like them on Facebook and let the information come to me?

Do I buy my train tickets from the station or do I buy them online to get them at a cheaper price (and possibly a first class upgrade)?

Do I go to a travel agents to research and book my holidays, or do I wait for a great deal to come up on Groupon and buy it on impulse?

Do I send big files by email or do I pop them in my free Dropbox?

If you selected the second option for at least two of these questions, you are part of a growing generation of consumers that I like to call The Digitial Dandies. 

I call them Dandies because, like a Dandy, they are (in the main) well dressed, educated individuals who are in eager pursuit of interactive leisure activities with high consumption of cultural activities such as music, events, travel, experiences, and quality products. The digital part is just the highly sophisticated mechanism they use to make this lifestyle possible - and at a fraction of the cost.

 

Digital Dandies want quality news content, but they want it for free. They are prepared to travel on public transport, but don't pay the full price and book online for a discount or an upgrade. They use facebook as a filter, accessing people, companies and offers via streamlined, targetted content that they have pre-selected. They love music, but they don't have a vast collection of CDs - their iPod collection is, however, extensive. They love films, but instead of going to the cinema to watch them they are either delivered by post (on subscription) or by digital download straight to their ipad or PC. They used to be called Early Adopters. They probably still are.

This is a big challenge for traditional retailers and it's clear they are fighting back with a barrage of offers, aimed at consumers like an automatic weapon: some of the ammo might miss but with just the sheer volume, they are bound to get some results. 

However, it's entirely the wrong approach. Marketers need to go back to basics on this one and start looking at the market and changing their businesses to fit the new model. Old fashioned consumer research is a must (albeit, we suggest making good use of technology to get the best results....): find out what your customers are doing and follow them. 

Successful businesses follow their markets and not the other way around.

Make your Message Clear

One of the fundamental aspects of communication is not that you must clearly send the message, but that it must be clearly received as well. 

And yet, despite over a week of protesting, miles of press coverage and extensive discussions on the subject, a significant part of Great Britain is still wondering why on earth people are protesting in tents outside St Paul's Cathedral in London. 

They chose the site, apparently, becuase it was situated near to the London Stock Exchange.  Their protest is supposed to be part of an anti-capitalist protest. However their message has been completely lost in the melee, and it's all down to one fatal flaw in their communications plan: their choice of site. 

Media coverage has been singularly focussed on St Paul's Cathedral, it's requirement to close because of the protestors, the loss of its income in the period of closure, it's leadership (or lack thereof), and the confusion as to why the protestors are there in the first place. 

In fact, it is now unilaterally being referred to by the press as the "St Paul's Protest". As messages go, we could say this one has completely lost its way. 

The protestors should pack up, go home and think again if they want to get their message across without being subject to further ridicule and satire and remember: when you are trying to make a point, communicating clearly is essential. Otherwise it's just noise. 

QR Codes: The Next Big Thing?

Clients have been asking me about QR codes. They are the next big thing, or so I am led to believe.

As a marketer, we've always got two options when it comes to the next big thing: Ignore it until it becomes too big to ignore or jump right in, play with it, experiment with it and maybe get it right (or very badly wrong).

As a consumer, I've downloaded the QR app to my smartphone. And used it. Twice. The second time it just annoyed me as the QR code was just too small to snap.

You see, all these QR codes on posters are all very well but how many marketers are sticking them up there without really giving them much thought? Quite a lot I would say.

That's why there are QR codes appearing on billboards (really? seriously?) and in magazines (which I always read with my mobile phone in my hand, of course) and on business cards (because it wouldn't be the height of rudeness to zap someone's QR code while still talking to them face to face at an event).

In fact, I see the marketing industry making use of this brand new, exciting (and it is exciting) technology in a rather dull and everyday way. Trying to fit it into their existing media. Deploying very little imagination in the process. Very few are geniunely using this technology to combine customer's needs with their marketing objectives. In fact, I can think of only one campaign I've seen to date that actually achieves this dual purpose, and with sophisticated finesse.

Tesco. In Korea.

Their virtual subway store, aside from being genius in its simplicity, has truly put the use ofthe QR code at the heart of the campaign. The marketing part of the campaign is, quite simply, the delivery mechanism. The PR value generated is incredible. In fact it's almost the inverse of other marketers' approaches to using QR codes.

It's engaging, it's effective, it's interactive and, over and above everything else, it's useful. For both the business and the consumer.

So until we can do something useful and effective with a QR code for a client, we'll be resisting the urge to stick them on posters and business cards. Just because.

Is Groupon Past its Sell By Date?

One of the fastest growing tech companies in the history of the planet appears to have lost its shine.

Storming across the US and into Europe in recent years, Groupon arrived in a blaze of glory, a consumer champion promising the customer unbelievable discounts and, for the retailer, unrivalled access to bums on seats.

In the midst of a recession, businesses flocked in droves, discounting their products and services by as much as 80%. Customers followed suit, buying at alarming rates. These bargains were too good to miss.

But they have a fatal flaw in their business model and, I suspect, the cracks are beginning to show.

It's a simple crack, right at the core: No business can afford to discount by 80% permanently.

So in order to succeed and grow, Groupon needs an ever extending supply of businesses from which to draw and they are clearly running out. This much is evidenced by their repetition of deals of seemingly marginal interest. Do we really need another 60x80 canvas print, or an electronic cigarette lighter for £18.99? Hold me back.

Groupon may give businesses access to the discount seeking masses. But who really wants customers like that?

Sure, for a while you'll be really busy, and some will stay as customers for a longer term, but for the vast majority, it will be a one hit wonder.

In an earlier blog I wrote about how discounting can work for the business, as long as a strong degree of planning goes into the deal. And that still remains true.

However responsible and sustainable business is a two way street. It always has been.

If businesses are expected to provide a living wage, then consumers must be prepared to pay a realistic price. This is responsible behaviour for long term sustainability.

As a matter of principle, we are horrified by stories of sweatshop practices and the exploitation of children in the pursuit of even cheaper goods. Then on Saturday we shrug it off, march down to our local supermarket and spend a tenner on four T'shirts, which probably cost 25p to make.

Groupon's approach is pushing us in the same direction.

How long before these businesses, having cut their income by 80%, start struggling to survive?
How long before they start cutting back on staff?
How long before they shut their doors altogether?

Ultimately it's the consumer who pays for the cost of marketing in the price of the goods and services. Groupon has reversed that equation, and now it's the business. However 80% marketing costs is too great a burden for even the most successful of businesses to cope with. And it will be the consumer who pays the ultimate price with less market choice, higher unemployment and gross deflation.

So the next time you grab a bargain, give just a fleeting thought to how you would be affected if you had to give 80% of your income away and consider, even for a moment, that there may just be another way. And if you do go ahead and press the button, enjoy your experience of that business: it may well be your last.

Should Editorial Be Bought?

This week I heard about a change in policy at one of Britain's largest media houses: editorial can now only be about products and services offered by advertisers.

Now, don't get me wrong, I'm not naive. I'm aware that the brandishing of my marketing budgets has frequently led to coverage where there may previously not have been any. However, I am also aware that many, many businesses simply can't afford to advertise in major newspapers or glossy magazines, but who might be doing incredible, newsworthy things that deserve to be written and talked about.

So what does this all mean and why does it matter?

Well, advertising is a regulated industry. If someone presents something to you in an advert and you believe their claims to be incorrect or unfactual, you have a right to complain and a body to complain to.

Advertorials are up front about being paid for editorials and marked as such so you can decide for yourself if the information is biased or relevant.

However there is nothing, absolutely nothing, to stop a newspaper or a magazine creating a policy like the one I've mentioned above, passing off funded opinions as genuine editorial. This is the media equivalent of back room deals by governments. You, the consumer, the reader, have no idea it's gone on and the outcome is entirely outwith your control.

The net result will, in my opinion, be bad for business in the long term. Smaller, innovative companies who can't afford to advertise will not get the opportunities to be heard that they fully deserve, the customer and readers will not get the opportunity to decide for themselves.

Instead we will be spoon fed a smorgasbord of products and services that can afford to pay and, although they may not be the best, they will be the only ones we can read about.

Magazine and newspaper content will degrade, although perhaps not at first. Readership figures will move with them. And an industry, which has clearly lost its way in the dark, may have just put the final nail in its own coffin.

It may seem like good business sense to look after your paying customers (advertisers) but what about the hundreds of thousands of paying customers (readers) whose rights to unbiased editorial that they are clearly overlooking?  The people that, ultimately, matter most to the paying advertisers?

I'm afraid that while, as a marketer, I like to opportunity to negotiate coverage with publications in return for advertising pounds, as a PR I also like the fact that editorial is NOT something that can be bought.

It's the media equivalent of free speech and should always remain so.