Daily deal sites a low-risk social marketing tool

Owners of online couponing sites say these offer an alternative, less risky marketing channel to help retailers raise brand awareness to widen consumer base with measurable results.
Written by Jamie Yap, Contributor

Offering bargains through "Groupon"-like daily deal sites do not counter traditional customer loyalty schemes of businesses, according to operators behind such sites in Singapore. They add that it is a complementary, low-risk sales promotion and marketing tool that can help push brand awareness to attract new customers and provide measurable results.

Using the concept of collective bulk buying popularized by U.S. deal-of-the-day site Groupon, these sites offer a different bargain every day, to their list of Internet subscribers in the various geographic markets they serve. A specific number of people must sign up in order to activate the promotion. Offers come in various forms such as discounts and vouchers, and cover a range of products and services ranging from retail to dining, from wellness to leisure.

Group-buying deals are not new on the scene, having been around during the early dotcom era. However, their comeback has been made possible and popular due to a more stable business model and the presence of social media. Facebook and Twitter have empowered such couponing sites to harness the power of social buying.

Phil Harpur, senior research manager at Frost & Sullivan, told ZDNet Asia: "There will always be a place for [traditional] loyalty schemes. Bulk buying sites are emerging as a different business model that will complement these channels."

Alice Wong, founder of VoucherWow, said in an e-mail that daily deal sites do not pose a threat to other business loyalty schemes. Rather, these sites are a marketing platform for companies to reach new customers.

She elaborated that VoucherWow works with businesses to offer a promotion for a limited time--for example, 72 hours--to "generate word-of-mouth buzz and bring in new customers by harnessing the power of collective buying and social media". If these customers enjoy the product or service, they will become repeat customers and may sign up with the business' other loyalty schemes, Wong explained.

Patrick Linden, co-founder and CEO of Deal.com.sg, pointed out that daily deals are different from other loyalty schemes because the latter is ongoing. Such schemes are also for the long run, involving incentives such as discount cards after accumulating a certain amount of purchases or freebies and special event invites as part of membership privileges.

Cost-effective marketing
Linden added that collective buying sites are a cost-effective channel to attract new customers, which merchants may previously not have been able to reach.

Daphne Teo, co-founder of Bigdeal.sg agreed, pointing out that daily deal sites are particularly effective for businesses starved for new clients.

According to Teo, Bigdeal.sg utilizes a pay-per-scale model to generate revenue, so business owners pay nothing upfront to use its services. This ensures that merchants pay the site only when a sale is generated, which means minimal to no advertising cost attached to creating a buzz. This is in contrast to traditional cost-per-thousand impressions or cost-per-click advertising fees, she pointed out.

Less risk, lower profit margins
Daily deal site owners all agreed that profit margins are not high when huge discounts are offered, but stressed that businesses are focused on other objectives other than revenue when partnering these sites.

Linden of Deal.com.sg said retail merchants do not leverage the site for a profit-generating exercise, but do so to reach out to a wide network of educated, Web-savvy consumers looking to spend their money on good deals.

VoucherWow's Wong explained that while the initial profit margin is low because businesses are paying only when there is a transaction, it allows them to finance it out of their cashflow. She added that some companies even limit their offers to first-time customers only, viewing it as an acquisition cost with no upfront risk.

Bigdeal.sg's Teo also noted that for most vendors that decide to tie up with bulk discount sites, the aim is to generate brand awareness rather than revenue.

She acknowledged that offering heavily slashed discounts "definitely eat into the profit margin" of businesses, but said the "large volume of sales could bring in cashflow of tens of thousands that is raised in just a matter of a few days".

Teo added that discount coupons from daily deal sites require customers to produce the vouchers for use at an actual brick-and-mortar store, which allows merchants to track the profits and expense from each voucher sale that been generated. The results are much more measurable than traditional marketing channels, she said.

One company that has tapped the social group buying trend is cable-ski park SKI360. Its operations director Roy Teo said in an e-mail that one advantage of providing offers via bulk buying sites is that the return on investment (ROI) is tangible and measurable, since "we can easily track [the returns] from the actual purchase".

More Groupon clones sprouting
Deal.com.sg's Linden said that since launching in May, he has seen the market in Singapore for daily deals expanding rapidly. Initially, retailers that the site approached were mostly skeptical about the idea of such sites. Consumers themselves were also unconvinced that the bargains would be honored by retailers. To date, the company has partnered close to 200 retail merchants and sold more than 25,000 vouchers, he revealed.

VoucherWow, also set up in May, has since featured over 150 businesses and saved Singapore consumers over a quarter of a million dollars (US$191,685), said Wong.

Bigdeal.sg's Teo said the site has over a hundred businesses that have signed up to provide offers, and says more than S$1 million (US$766,733) worth of savings have been chalked up.

That said, Frost & Sullivan analyst Harpur felt that collective buying through daily deals will eventually reach its own point of equilibrium due to the heavy discounts. By then, only some suppliers will be profitable, and other merchants may stay clear of this business model, he noted.

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