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No end in sight to daily deal woes

Daily deal sites can’t get themselves out of the spotlight – be it for falling revenues or customer satisfaction. But it’s hardly surprising and opinion continues to turn against them.

Last week Groupon, the biggest player in the daily deals space, reported a net loss in its first quarter since it went public last year. Groupon has made many attempts to profitable by cutting back on things like marketing, but that is yet to prove successful.

Last week the company wiped 13% off its shares with founder Andrew Mason attributing the loss to higher taxes overseas.

But are there other factors at play? Consumer fatigue is seeping in or maybe it there is something inherently wrong in the business model?

If industry players are to be believed, the discount-based model is not sustainable to begin with.

“A restaurant meal served or a physical product delivered contains substantial production cost elements which mean that a deal at 15% of normal will be below their break-even rate. As a result doing Groupon-type deals will bury those kinds of companies in the medium term, let alone the long term,” Mike Langton, VP of business development and regional sales director at ADZ, said.

According to Langton, a Groupon deal is a bad bet for a company providing anything other than a commodity type of service as it cannibalises the existing business and brings in people who are by definition likely to be non-loyal.

“From a quality brand perspective, it’s a bad space to be in.”

Last year, the Consumers Association of Singapore (Case) received 32 complaints from customers of three popular group-buying sites: Groupon.sg, Deal.com.sg and BigDeal.sg, mostly revolving around deals that couldn’t be redeemed.

Some experts say there are two key questions every brand getting into this space, should ask. Firstly are my operations able to handle the sudden influx of people coming and will we still be able to make profit.

At least this is what Clarice Zhang, assistant marketing manager of Far East’s F&B arm Kitchen Language does. The company has seen good returns on its daily deal offerings, but it is cautious. According to Zhang, most companies get into it without giving it a thought.

“Maybe that’s why they mishandle customers resulting in more complains. And that is also why merchants like us would only want to feature our deals once or twice and stop after that.”

Groupon usually encourages merchants to put up their products for at least 50% off, in order to attract more buyers. After selling off the products, merchants have to split that revenue with the deal site according to the share ratio agreed.

“These deal sites have the power of reaching out to large masses that we can’t but the thing is, they sell themselves as being able to get discounts of ‘up to 90%’. This is just not viable,” she said.

“With more deal sites popping up there’s bound to be a market saturation. How many merchants can afford to repeatedly sell their products at that kind of discount?”

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