All Cats Presents: "How Aggressive Daily Deals May Hurt D.C Businesses and How You Can Help"

Guest-Blogger Rohan wrote this piece for us....you can usually find him at http://district365.com/.


In the land of the most socially networked people in the country, he who harnesses the network is king.  

But when navigating that network requires a grasp of Google Adwords, Facebook campaigns, Twitter strategy, and mobile apps, your typical local business doesn't know where to start.This is no surprise.  Marketing is a difficult science to begin with.

But creating a social media strategy that generates foot traffic is like dating online and trying to get hundreds of beautiful singles to meet you for lunch.  Each and every day.A tall order for anyone.

And more difficult still for folks who spend their time serving up delicious cupcakes and not coding css.

Processing refunds, and not retweets.

It’s not hard to see why many small businesses stay on the sidelines, cross their fingers, and hope their Yellowpages subscriptions pay off.  This time around.

The Emergence of Daily Deal Sites

When the Groupons of the world emerged, businesses convinced themselves (or were convinced) that the social-media-meets-main-street holy grail had arrived.

Local businesses pretty much fell over themselves to slash their prices by 50% and hand over half of the remaining 50% to Groupon.   “Cut your prices in half, and give us half of what’s left!”  

So for example, for $40 worth of goods and services, businesses might only collect $10.  Well at least they get the money up front right?  Nope.  The payouts are made in installments.  So many businesses find themselves delivering thousands of dollars in goods and services without actually receiving a penny from the deal site.  It's not difficult foresee the cash flow problems that quite a few businesses have reported to date.

And all of this is assuming that the business collects any money at all.  Quite a few folks have reported that for deals that are less than $10, Groupon keeps 100% of the money.  This is not a typo. 

Well The businesses Agree To This

This is true.  I’ve wrestled with this myself and can’t help but be reminded of folks who agreed to predatory lending practices and got stuck with bad subprime mortgages.  One could argue that they agreed to these deals as well, but we recognize that many of these folks were unfamiliar with mortgage finance, and were taken advantage of by a well oiled marketing machine.

Well I do believe a similar thing is at play here.  A sort of hubris driven by an aggressive and sophisticated sales team.

And just like the subprime folks were unable to refinance those mortgages as promised, quite a few small businesses have yet to see the repeat customers and other promised benefits that persuaded them to essentially give away their goods and services in the first place.

To Be Fair Groupon Can Be Great for some businesses
There are some businesses, that really benefit from all of this.  Some of these include:

1. New businesses needing a boost in awareness and see this as advertising cost
2. Service businesses with very high margins
3. Places where there is very little variable cost like museums and dentists
4. Businesses with high repeat customer rates
5. Locations with a sound strategy on how to collect customer info to market to them again

For many other companies however, the aggressive pricing required to participate in a Groupon may at a minimum not be worth it, and at a maximum dangerous for the company.  And when it's all said and done, we all rise and fall together as a city.

THINGS YOU CAN DO

So what can you do to help even things out a bit?

1. Support Local Deal Sites. They tend to offer better deals to local businesses and they also support our local non-profits.  Spoonbytes and Deedsfordeals come to mind.

2. Be Courteous. For deals that are under $10, there is a chance that the Deal site (if it’s one of the large national deal sites) gets all the money.  So keep this in mind as you’re tipping, and do remember to tip on the value of the deal and not on what you paid for the coupon.

3. Share the word. If you did enjoy your time with your coupon, do spread the word about the business.  For many of these deals, the business is dependent on new repeat customers to break even.  If they're lucky.

THE FINAL WORD

I’m not arguing that the sky is falling, or that we have a Daily Deals bubble on our hands.  While there are plenty of horror stories of businesses unable to make payroll or being faced with serious cash flow problems in the surge that invariably happens near coupon expiration, I do recognize that some of these reflect worst case scenarios.

And I certainly am not aiming for a “bash Groupon” post, by any means.  I really set out to be as fair as possible.

But even in the best of scenarios, where spending is literally cut in half each day for several DC area businesses, and half of what is left is spirited off to an outside company, I'm at a loss at how this is a net benefit to Washington DC?  I’m not convinced that it is.  

Maybe I'm wrong about this.  My mind is open.  I’d be glad to hear your thoughts.



Rohan is an accountant based in Washington DC, who stumbled and fell in love with the city.  On a whim, he started the blog District365.com, which has since blossomed into a daily online magazine on 365 Things to Do in Washington DC.  You can also catch him on Twitter@365thingstododc.