22 August 2011

The dot DEALS blow-out

Here's me just throwing out some thoughts and observations. And maybe a prediction or two.

These social deals that are doing the rounds as GROUPON, MYCITYDEAL, TWANGOO, WICOUNT, etc. (they vary from country to country but I'm speaking specifically from a South African perspective here) have practically ballooned in the past year and I can't see how this is a sustainable model at all.

To start, we've got the actual concept of the system - a supplier engages one of the various deals providers to promote their product and then gives away their product at a tremendously below-margin price while still paying the deals provider for the advertising service.

There are already problems with this model. Firstly, how do you know which provider to pick? Everyone probably has the same audience by now (come on, admit it - you've signed up to more than one deal service already, haven't you?) and the audience is becoming saturated. For a provider to outdo another provider they need to claim a larger portion of the audience pool but there's a limited number in the pool to begin with. By now I'm fairly sure 80% of the entire target audience has been snapped up by one (or more) of the deals providers so their life expectancy based on this fact must be severely limited.

Secondly, how can a supplier survive as a business if they're selling off their products at well below cost to scores (or hundreds) of consumers? The third problem stems from the second problem, and that's the problem of commission. Not only do the suppliers have to see a value in selling a hundred products at below-cost pricing but they have to still pay the deals provider for the service which even further erodes their cashflow.

The concept of aggressive marketing isn't new by any stretch but the next challenge is ensuring that your potential clients don't just sit around lurking and waiting for you to set up a social deal just for them to snatch it up - it's almost like we're creating a generation of lazy consumers that will rather wait and hold out for a deal than buy something at full price. A risky business.

I haven't even mentioned the email farming that's taking place so there's a lot more to this whole story but I won't bore you with the details. Instead, I'll just finish off with this observation (which has led to my prediction): how often do you receive adverts for weight-loss, hair treatments or gym sessions? Now compare that to how often you actually find a really good deal nowadays. See where this is going?

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