Coupons vs. Deals
The public stock markets make it very easy to separate those who had a good year from those who did not. As is the case with the public markets, the separation between good and bad has a large, subjective component. A company can show growth, yet find their stock price beaten down; similarly, sucking less than expected can result in share price gains. One of the biggest winners comes as no surprise. The only surprise might come from how this company did so well in a year that treated so many consumers so poorly.
Almost proving that their electronics constitute a staple good, Apple will, when officially announced, show record everything. Transforming and innovating on major markets will do that to a company. As mentioned before, that they could see such growth in a time of economic sluggishness is astounding. They, though, were not alone. Like Apple, they too have seen the financial benefit of innovating on a large market, by some accounts a multi-trillion dollar market, that of local ecommerce.
Few companies have captured the business world the way the daily deal / group buying sites have. As we wrote about in last week’s “The Year That Was,” these businesses didn’t start out to solve local ecommerce, nor were they the first ones to aggregate discounted local deals. They were the first, though, to combine the elements and create what has become online to offline performance-based marketing. The model has become incredibly scalable and by and large a win-win-win – good for the user, good for the merchant, and good for the deal companies.
The deal sites fall into several different buckets, with the two biggest following a similar format. Consumers pay a certain amount for a voucher that offers them an even greater amount to spend, e.g., pay $25 for $50 at a certain restaurant. As talked about before, scarcity and social proof help drive up the total sales while protecting, to some degree, the merchant’s brand. On the outset, this discounted transactions seem a lot like coupons. In fact, the largest player’s name comes from the combination of “group” and “coupon.” So successful have they been, that they turned down an offer for $6 billion. The name might have relics of “coupon,” but there is a reason that deals differ from coupons….about $5.9 billion (the largest coupon site sold for almost $100 million).
Frequent online shoppers know all about coupons. The idea behind a coupon is pretty similar to that of a deal, to entice us into purchase. We see coupons all the time, especially offline. Big chains, for example, love to send out coupons to their clients. “Come in this week and save 20%.” For these offline transactions, that usually means bringing in the coupon. Online, you can’t bring in a coupon or scan a bar code, so those require some other form of redemption – the coupon code. “Enter this code on checkout to receive your discount.” And, therein lies the problem. For so many retailers, that little coupon code box sits empty on checkout pages. The box doesn’t show up only if you’ve clicked a special link. It’s there just taunting customers to enter something.
Couponing’s curse is that it takes good, full paying retail clients and turns them into deal seekers. It causes people ready to check-out to leave the site in search of savings creating a lose-lose. If the user finds a coupon, the company just gave up more money. If they don’t find a coupon, they feel as though they overpaid because obviously the existence of the box means someone gets a better deal (even when that isn’t the case). The other problem with the coupon box is that it’s very hard to protect a code. A whole ecosystem exists to aggregate and share codes. An entire multi-hundred million dollar affiliate business exists to double dip from companies by redirecting retail users into wholesale ones. Redirection isn’t the only curse. It’s a pull based business versus a push based one. Deal sites send users deals. They can buy the deal without buying a big purchase. Coupons work when users search for them.
None of this means that owning a coupon site is a bad business. They are some of the highest profit and lower maintenance businesses, assuming you get one up and running. Unlike the deal space, you don’t have to negotiate with each merchant directly. You can tap into the affiliate channels and get feeds of deals. Thanks to the affiliate space too, you can have instant access to top brands as well, all of which helps the site before it tries to innovate in the way that RetailMeNot did with user feedback. What you can’t get with coupon sites though is truly big. Unlike the daily deal space which taps into an enormous market of traditionally offline dollars, the coupon business is a subset of a very large business. Big as it is, it’s nowhere near as large a business as local small business advertising.
Deals won’t replace couponing. They are similar beasts that solve two different customer acquisition challenges. Both attract deal seekers, and neither grabs exclusively new customers, but deal seekers have the chance to at least. Those who buy deals may not become new, long-term customers, but it doesn’t inherently cannibalize existing users the way coupon sites do. We’ve started to see some experimentation by traditionally couponers (big brands) doing deals, but it’s far too soon to call that death to coupons.They have such a loyal group that even if merchants wanted to, they probably wouldn’t mess with it.
