May 01, 2019
Get Your Piece of the Daily Deal Pie
By: Jaffer Ali
(Originally Published: November 1, 2011)
No doubt about it, the online daily deal space is red hot. Here are just a few data points to prove the point:
- Annual revenue for the daily deal space is projected to eclipse $6 billion within the next four years
- Groupon sales rose from $33 million in 2009 to $760 million in 2010
- Groupon filed for an IPO with a projected valuation of $25 billion
- Living Social is filing for an IPO with a projected valuation of $10-$15 billion
- Amazon has placed its bets by purchasing Woot for more than $100 million as well as investing $175 million into Living Social
- There are presently more than 1,500 different daily deal sites
It is a worthwhile question to ask: How can marketers can enter this growing industry? I believe the projections for the industry are conservative. Consumers love daily deals that help them stretch their budgets during recessionary times.
PulseTV.com has been sending out a daily deal to consumers since 2007. It has grown from 25,000 subscribers to more than 5 million customers who receive a deal-of-the-day offer via email.
If you are a TV direct response marketer, then you probably have experienced declining list rental revenue. Email list revenue has also all but disappeared. Add the decline in third-party membership revenues that are eating into your bottom line, and this creates further incentive to explore how you can get a piece of the daily deal pie.
The question before all marketers, including TV direct response marketers, is how they can extend their brand and maximize the value of their database of buyers. Creating a deal-of-the-day sent to your buyers is one way to add significant dollars to your bottom line and extend your brand. So what are your options?
Do It Yourself
Understand that your database of buyers belongs to you. You have an extraordinary opportunity to remarket to your customers using one of the lowest costs of communication ever devised: email. Groupon has 83 million subscribers worldwide, of which 19 percent have actually made a purchase.
You can enter this sector simply by having your buyers become a subscriber to a daily deal email. You have the right to contact these buyers via email. Of course this presupposes you obtain an email address, a practice that is not universal amongst TV marketers, but it is should be.
The pros of mailing a daily deal to your database of buyers are that you can liquidate overstock and diversify your revenue stream beyond TV, but you do not have to share revenues with a partner. It also gets you out of relying solely upon a hit-driven business model.
But there are issues to consider that make this approach difficult. Unless you are offering a real deal, you will not be successful. Once someone becomes an online daily deal consumer, they brutally price check offers. They also are more sensitive to S&H than TV offers. Generous discounts are critical to a successful daily deal program.
Liquidating your products through a daily deal program can ruffle a few feathers with your retail clients. If they are selling the latest TV product near the suggested retail price and suddenly it appears in your daily deal email at a 50 percent discount off the retail price, they can get testy.
You also must offer a minimum of five offers per week. Since you most likely do not have 260 new offers per year, this means you must bring in other products to market to your buyers. This also means that managing inventory becomes paramount. Increasing SKUs is not to be taken lightly. Drop shipping from suppliers is a possibility, but that presents its own logistical challenges.
If you try to offer coupons to local restaurants a la Groupon or Living Social, this solves inventory issues but requires a huge staff to sign up local vendors all over the country. This is not a practical solution. The barrier to enter this space is very low, but the logistics of having a lot of boots on the ground to sign up vendors is overwhelming.
Email deployment is not a simple issue. We have one full-time person whose sole responsibility is interacting with ISPs and dealing with getting email unblocked. Gmail, Yahoo, Hotmail and AOL users generally use "report as spam" links to unsubscribe. This requires feedback loops and dealing with getting email unblocked. Outsourcing email deployment to ESPs (email service providers) remains an expensive alternative.
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Partner With A Daily Deal Coupon Site
Each of the daily deal couponing sites offers partnerships. Here, securing the vendors for the daily deal is outsourced to Groupon, Living Social or some other site. Many local radio, newspaper and television stations have chosen this option. They leverage their subscribers/audiences and give those to the partner to monetize and share revenues.
This has pros and cons as well. The benefit is that one can start earning revenues immediately by supplying a partner with your database. The daily deal space is crowded, and this has put tremendous pressure on their margins. Sharing revenues on a decreasing marginal pie is not an ideal business plan.
But the No. 1 problem is timing. Groupon already has 83 million subscribers, and Living Social has just under 30 million. These will be merged against your data file. Since any potential partner will not want their customers to receive two of the same daily deals, they will purge matches. The bigger the partner, the more of your names will dupe out.
So you must find a partner that is large enough to have credibility, but not too large to dupe most of your file. Remember, your email database is owned by you, and you need to maximize it.
Partner With A Product White Label Provider
There are several white label daily deal providers. [Disclosure, one of our companies, PulseTV.com does this for several direct response marketers.] Because these providers often deploy in the name of the partner, they are not publicly known. The benefit of choosing a white-label provider is that it is your brand that is extended in the marketplace. You do not require a staff to manage inventory; it is a turnkey solution in which you receive a share of the revenues and you can implement with practically no effort, which is increasingly important as we are all so busy with plates spinning.
Some providers other than our company include: Analog Analytics, Chomp On (web based) and DealWerk.
When choosing a white label daily deal provider it is critical that the tracking of sales is done by an independent third party. You never want the fox to guard the hen house so-to-speak. Also, it is critical that you choose a partner that has the right product mix that will appeal to your audience. TV marketing relies on impulse buying. The daily deal industry shares many of the same impulses of TV direct response marketing.
As mentioned earlier, the daily deal space is competitive and this means that whoever your partner is they must offer real deals; otherwise, response rates simply will not be there. As with any new industry, there are many possibilities to explore from a bevy of suppliers. Choosing the right partner is critical for success.
What Can You Expect To Your Bottom Line?
Now that we have explored some of the options on how to get a piece of the daily deal pie, what can you expect? This is a lot like asking how much profit one can expect from a TV direct response campaign. Presently, our white label solution pays out a percentage of the gross shipped sales. We chose a percentage of the gross to avoid complex "net percentage" deals.
The industry standard percentage is 50% of the net proceeds. It is essential to understand all the line items that go into the net calculations. But in the end, you really want to know what you can expect to get per name in your database. This information is jealously guarded by the industry.
Our own white label deals generate on average $1.27 per name per year for our partners. This is bottom line money added to partners. That is over a combined average of 21 partners. But the range is more instructive. The range is between a low of $.25 per name per year to $2.50 per name per year. The determining factors are how quickly names are remarketed with a daily deal email, the price of the original product sold, the product category and the reputation of the brand. We unfortunately do not have figures from other white label providers.
The daily deal space will not go away. It is time you figured a way to get your piece of the pie.
Original Article: Get Your Piece of the Daily Deal Pie