The Daily Deal Dilemma

Oct 04, 2011

Article ImageOver the past four years daily deal sites have flooded the marketplace. As of July 2011, daily deal aggregator Yipit has tracked over 650 group-buy and flash sale sites, with dozens more joining the already crowded discount field each month. With an easy to enter marketplace and revenues expected to reach $10 billion by 2015, the incentive to join in the group-buy and flash sale boom is great—but not every site can be effective and profitable. According to StrongMail, an industry leader in email and social marketing technology platforms, adapting to customers' preferences and behaviors is the key to distinguishing oneself in this crowd of hundreds.

In a new special report, "How Daily Deal Sites Capitalize On Email Marketing," StrongMail addresses the challenges of group-buy and flash sale sites staying relevant to both customers and advertisers. Consumers often view flash sale sites, such as HauteLook and RueLaLa, and group-buy sites, such as Groupon, as the same: a place to buy what they need at a deep discount. However, the business models for these sites can vary significantly. Flash sale sites operate on a limited time platform, giving customers a day or a few hours to get great deals on excessive inventory or last season's merchandise. Group-buy sites partner with businesses to offer deep discounts and to drive their customer base to that business, with the hope those consumers will come back again and again.

How do you stand out in a crowd of 650? According to Kara Trivunovic, senior director of Strategic Services at StrongMail, it's all about creating a personal customer experience. "In order to be successful these sites need to provide relevant offers that users care about," she says. And in order to stay relevant sites need to understand their customers. "These sites can target customers by gathering information about their group and categorizing their interests," Trivunovic adds.

But a customer's preferences and behavior can be two different things. "I might say I'm interested in sky diving," says Trivunovic. "But when it comes to spending money on sky diving or clothes for my children, I'm going to buy clothes for my children." The focus of group-buy and flash sale sites have been to bring their customers relevant offers as quickly as possible, but the industry will need to shift to bringing customers an experience based on their personal needs.

Flash sale sites have an advantage in this regard. "They tend to be more niche," says Trivunovic, "so they seem more relevant to their base." Flash sale sites by definition are more targeted, offering deep discount on children's clothes, home goods, shoes, etc. Rather than receiving a daily email where an array of discounts are available, flash sale sites are self-selecting. Zulily, a flash sale site, offers discounts up to 90% on infant and child products. Parents are more likely to seek out a site like Zulily rather than waiting for a group-buy site to offer a coupon that fits their needs.

Let's not forget one challenge all discount sites face. "It's important to recognize you serve two masters: advertisers and consumers," says Trivunovic. Businesses as well as consumers need to profit from daily deal sites, but many merchants complain the traffic driven by daily deal sites consists of bargain hunters who aren't predisposed to becoming long-term customers. Trivunovic says daily deal sites provide an opportunity for repeat customers, but that it's the responsibility of the business to create the best experience for the customer. In addition, daily deal sites need to know their base in order to find merchants that fit with what their customers are looking for. For example, if 90% of a site's group-buy costumer base are buying coupons for restaurants then that site needs to cater to their predominantly foodie audience.

Likely in part due to the unstable economy the group-buy and flash sale site industry is experiencing a boom, with huge gains in traffic year on year. However, booms are often followed by busts, and the current daily deal obsession is expected to peter out around 2015. Some sites will ride the bubble to the top while the majority will fall into obscurity. In order to be successful, group-buy and flash sale sites will need to create a unique and personal user experience.