Does the decline of Groupon mean the death of the 'Daily Deal'?

A year ago, Groupon sold stock in itself, raising over $700 million. This year, its second-quarter earnings results were extremely disappointing for shareholders, compared to its spectacular opening on the public markets. Does Groupon's decline mean the death of the daily deal market? Well, I don't think so, necessarily. 

Certainly, companies offering daily deals are going to face tougher times ahead, in light of increased competition and the negative feedback that Groupon received, due to it's manipulative business model and poor customer relations. Nevertheless, daily deals are not a new idea, they have been with us for decades and I believe that they will endure in a range of forms for some time to come. Like many business models, their transition to the internet has been messy and painful. Again, not unusually, many people have been keen to exploit the more abusive potential of the daily deals concept, for their own short-term gain.

There are definitely issues with Groupon's business model but I don't think this signals the death of daily deals in general, or of companies using them as a strategy. Groupon, in my opinion, had a solid basic idea, with one particular flaw: They attempted to exploit the naivety of their customers.

Many small operators, with a poor understanding of business economics, jumped on the Groupon bandwagon and then proceeded to make the classic 'we're losing money but we'll make it up in bulk' error. Regardless of Groupon's own culpability in those decisions, these businesses then blamed Groupon for their losses. Groupon got a ton of bad publicity, investors bailed and they lost market share.

I think the daily deals model can work for small businesses but it's not as simple as it's being made out to be by companies like Groupon. Basically, you get customers in with the low price and then deliver an outstanding service that will make it worth their while to become regular customers, even at the full price. You also have to factor in that ninety-plus percent of the initial extra business that you see will be 'price tarts' that you never see again.

It has also been pointed out by others that businesses that rarely fill to capacity can get a short-term increase in revenue at little cost to themselves and that unknown start-ups can gain much needed publicity as well as revenue, by using the daily deals model.

In short, make sure that the figures add up, and you can benefit. If they don't, don't touch it.

Links to research articles:

• Ding Dong, Daily Deals Are Dead
• Is Groupon's Business Model Sustainable?
• Why Groupon is poised for collapse
• Groupon and its rivals for daily deals learn lessons, tweak business models
• Groupon's IPO biggest by U.S. Web company since Google
  
  [Edit 01/12/2020]
  You can now download the The Decline of GroupOn article as a printable PDF file.