Can the Coupons and Groupons keep on coming?

Perhaps you’ve noticed it already? Even though the number of companies and websites offering local deals, coupons and discounts is increasing exponentially, the actual deals themselves or at least the quality and attractiveness of them is decreasing. It was bound to happen. As the sayings go, “you can’t get blood from a stone” and “you can’t make a silk purse out of a sow’s ear”!  

What does this have to do with the case in point? Simply this: A good deal, to be effective and profitable, must benefit both parties! In most cases, the high discounts offered by the deal and coupon companies were totally funded by the retailer or restaurateur. If a restaurant was offering a 50% discount on $50 worth of food, then they would actually only typically receive 25% of the retail value because the coupon seller would keep 50% of what the end customer paid. You don’t have to be a business tycoon or math whiz to understand that for most businesses, this is a money-losing proposition. No normal food establishment has a 300% mark-up on its wares, unless it’s a government monopoly!

The argument offered by the Groupons and Living Socials of the world was that this was a necessary and highly targeted marketing cost which would ultimately convert into NEW loyal customers and future repeat business. There are two major flaws in this argument:

1. The majority of restaurants never saw the influx of new loyal customers! Rather, it was more like a “hit and run”. Over the last year, we have used about half a dozen of these deal coupons ourselves and in no instance that I can think of have we gone back to the establishment where we used it. This was not a conscious choice but rather stems from the fact that we used coupons in places that we do not usually visit! Having used the coupon has not resulted in any change of behaviour on our parts. The simple fact is the next time we want to try something new, we will experiment with yet another coupon rather than return to a restaurant where we used a coupon before, but this time without coupon.
2. Unlike traditional advertising venues where the total cost of any campaign is a known factor before the campaign commences, with these coupon deals, the merchants have little idea of what the end result may be. Indeed, there have been a couple of albeit somewhat extreme examples where the coupon redemption was so high that it actually forced the restaurants in question out of business. That is, of course, not the standard result. On the other hand, a growing number of restaurateurs are discovering that what may be a great boon to the customer turns out to be a boondoggle for themselves.

So, perhaps now you can see why the supply of these Daily Deals and coupons is slowly starting to dry up. In all probability, the strongest will survive and the Johnny-come-lately-s will fall by the wayside. It remains to be seen what this system will be replaced by but if you keep following this blog you may see something new start to appear in the not too distant future.