By Lisa on October 21, 2011
Robert Collier, an early pioneer of direct response marketing, often said that one of the most powerful ways to influence people to buy is to present them with a novel offer. Consumers crave novel experiences, and if they have never seen the offer before they will buy in throngs. But, as he warned, don’t rely on the trick to last long. Novelty has a short shelf life after all.
In 2010, consumers found novel offers through the explosion of deal sites. They could use their collective bargaining power to get ridiculously cheap products and services from their local merchants. And they bought. Groupon grew from $33 million in sales the year before to $760 million in 2010. Yet, in 2011, it looks like the novelty is wearing off. Since July 2011, according to Experian Hitwise, Groupon has seen a 50% dip in its web traffic.
Explosive growth, rapid decline, these seem to be the constants for companies in the sector. And 2012 looks like it will be a make or break year for the businesses offering amazing deals.
Here at Impact Radius we have some predictions for the top challenges facing daily deal sites, social buying, and digital coupons, in the coming year.
Another Day. Another Daily Deal
In June 2011, PriceGrabber released results from its Local Deals Survey, revealing that 44% of respondents reported using daily deal websites. But 52% expressed feeling overwhelmed by the volume of emails, offers, and bargains they receive. And 60% of respondents said that the sector was just too crowded. Too many sites. Too many deals.
Investors would agree. Yipit.com, a daily deal aggregator, reports that nearly one-third of all daily deal sites nationwide (170 of 530) have been shut down or sold this year. BuyWithMe, perhaps the most aggressive acquirer of deal sites, has just announced it will terminate nearly half of its staff. You have to wonder the viability of deal oriented promotions, especially when companies with some of the largest consumer databases in the world (i.e. Facebook, Yelp, and Google) have held back from delving further into the space.
Further complicating the space: customer acquisition costs are increasing for deal sites. Groupon’s acquisition costs went from $7.99 in early 2010 to $23.46 in 2011. So too are staff salaries (upwards of $100k per employee) which translates to increased participation costs (higher commissions) for advertisers looking for a piece of the action.
Most deal sites are locally focused and maintain locally segmented subscriber bases. This presents an added problem for big brands advertisers wanting to push out a daily deal. The combination of global reach with local execution poses huge logistical challenges and deal backlogs make it difficult to execute timely roll out strategies. Plus, there’s the human resources required to negotiate deal placements across hundreds of localized deal sites. Launching a nationwide franchise daily deal campaign is much more complex than running a TV ad to advertise a weekend sale at participating outlets.
Deal sites operate by taking a percentage of sales (50% is the norm) or bookings and also require a significant discount from advertisers. With this pricing, an advertiser’s customer acquisition costs are typically offset only after a second (or third) purchase. It leaves marketers wondering if there actually is a positive return for these deep discounts? Further, brands question the long-term effect substantial discounts place on their business. After all, deal site users are impulsive and without brand loyalty. Does the advertiser ‘acquire’ these customers at all? Calculating the ROI from this channel is certainly not clear cut.
Advertisers questioning the value of big deals may explain a recent study by Rice University which shows fewer businesses negotiating a second deal with the daily deal or group buying companies. The study examined the performance of daily deal sites in five major sites in 23 U.S. markets between August 2009 and March 2011. The study states: “not enough businesses are coming back to daily deal sites to make the industry sustainable in the long run.”
Still, with the success of BuyWithMe’s 73% off a 10-week USA Today subscription and Plum District’s $20 for $40 worth of Pampers diapers from Diapers.com, expect more national brands with deep pockets to experiment further in 2012.
The Rise of Digital Coupons
In 2010, more than 49 million U.S. consumers used online coupons. That’s more than 16 percent of the population and almost one-third did not clip coupons from their newspaper, says Simmons Market Research.
Sites like Catalina Marketing’s Coupon Network provide manufacturer coupons and promo codes from regional and national brands. Consumers can also download mobile apps which deliver coupons or can visit the website, browse, and find a promotion to match their shopping needs.
One promising feature of coupon sites is the trend toward synchronizing coupon use and delivery with mobile devices. Mobile coupons can be distributed via a text message, activated by store location, a branded app, or barcode, or sent when a customer stands near the physical product. They are convenient, and ready to make a big step forward in 2012. In a recent survey by Prosper Mobile Insights, 67% of respondents indicated that they want to receive local-mobile offers, agreeing they are “convenient and useful.”
The challenges for marketers distributing mobile coupons is found within the infrastructure, particularly on the retail end. Few brick and mortars have the infrastructure to scan mobile coupon codes and even fewer have the ability to collect and sync coupon data back to their online campaigns to measure true ROI and customer acquisition costs.
In 2012, though, expect to see the solution being more app-driven. For example, GroceryIQ, an application from Coupons.com, helps customers compile a grocery list and then matches digital coupons to their list.
While retail adoption of mobile coupon delivery is likely to pick up in 2012 (especially as smart phone user numbers increase), marketers will still need to ensure that they are tracking coupons accurately to understand the role coupons play in acquiring and retaining customers. On the technical side, there is work to be done with eCommerce logic, for example, provisioning coupons for specific media partners and applying the business logic to controlling how and when a coupon is valid during the checkout.
Are We Sick of the Mob? Social Buying Challenges
As most people know from Groupon and LivingSocial.com, social buying sites require a certain number of people to purchase before the “deal is on”. However, the biggest challenge facing social buying in 2012 is that consumers might just be tiring of the entire “group-buying” concept. It was new. Now, it is starting to just look like a 50% off sale – tempting, but repetitive.
This is a hard one for the digital advertisers because the group element is what has defined social buying. It’s a perpetual Black Friday delivered into your inbox as you clamor to grab giant savings before your neighbor takes the last one.
It can be fun. For example, last year Walmart launched their CrowdSaver app in Facebook which triggered a deal offering 18% off a plasma TV if 5,000 people clicked on the ‘Like’ button.
And Groupon did make buying fun. The copy was fun. The idea of getting cupcakes, or clothes, or a meal from your local merchant for a fraction of what you’d pay any other day was fun.
But Groupon is mass marketing. There are no filters. One offer, one giant audience. And mass marketing tends to quickly lead to attention fatigue. Check your app fifty times, and you might find an offer that interests you.
So to engage users on a sustained basis, the challenge will be to evolve more targeted offers and sophisticated targeting technology.
Tailoring offers, though, also comes with complications when selling the value of social buying sites to merchants. The attraction for most merchants is access to a vast consumer database. Collective bargaining power demands incredible deals, and when delivered, produces impressive volume. Merchants have come to expect the emptying of the warehouse. Targeted offers will please the consumer but may only deliver the advertiser sales on a few dozen niche items.
For social buying to survive it needs a stream of compelling offers that customers haven’t heard before. That’s not an easy task for any marketer, and especially not when you’re churning out an offer in every major city, every day.
In 2012, it will be interesting to see national brands using social buying as they will approach the channel with a strategic perspective missing from many small businesses.
Although, this will also have challenges such as tracking, coordinating across multiple locations (especially franchise marketing), and the danger of bad experiences (such as long lines to get products) which could do more long-term brand damage than is worth a quick sale.
So what do you think is in store for social buying, digital coupons, and daily deals? Will they be here to stay? Tweet your thoughts with the hashtag #2012Marketing.
Daily Deals, Social Buying and Coupon Marketing Solutions Coming Soon
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