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When most people talk about sustainability, they mean it in reference to the environment – sustainable fuels, sustainable packaging. I’m not talking aboutthat kind of thing. I’m talking about sustainable business models. RSR has spent a lot of ink asking if stores, in their current business model incarnation,are sustainable. Our conclusion: no. Something’s gotta give. But at the same time that one business model seems to be on the outs, there is a whole cropof new ones on the rise. Some of them work. Some of them don’t. One business model that has been getting a lot of attention – in part because it is beingused to try to drive traffic to struggling stores – is the daily deal. Groupon has had its hand slapped over strange new methods of accounting for itsvalue and has delayed its IPO. You can find just as many naysayers as enthusiasts, and more tellingly, repeat daily deal offers seem to be rare. Are consumersgetting daily deal fatigue? RetailWire explores that topic below. I think there’s another issue at play, and that’s sustainability. I know I’m not an averageconsumerby any means, but every time I contemplate buying into a daily deal, I wonder to myself how much this deal is helping the retailer vs. hurting them. Andwhile I love a great deal as much as the next person, and I realize that these retailers are making these offers of their own free will and hopefully witha full realization of the consequences that might come, I still worry that I’m participating in a scam that just takes advantage of a somewhat desperateretailer. That is not creating the conditions for a sustainable relationship with said retailer. But whether guilt is at play in daily deals or not, fatiguecertainly seems to be playing a role – read on:

Each business morning on RetailWire.com, retailing execs get plugged in to the latest industry news and issues with key insights from a “BrainTrust” of retail industry experts. Here are excerpts from one of these unique RetailWire online Discussions, along with results from the RetailWire Instant Poll.

RetailWire Discussion:

Dull Daily Deals By George Anderson
Editor-in-Chief, Associate Publisher, RetailWire

Are consumers going numb to the plethora of deals coming their way on a daily basis? “There is definitely a risk of oversaturation with these daily deal programs,” Kit Yarrow, a professor of psychology and marketing at Golden Gate University, told MainStreet. “Consumers can develop an increasing tolerance to that sense of the thrill of a bargain, and eventually it just stops being thrilling.” According to Prof. Yarrow’s research, consumers are getting eight to 10 deal emails a day. “I think consumers are approaching a new normalcy for bargains where they have come to accept the bargain as being the standard price, reducing their impact,” Prof. Yarrow told MainStreet. “After all, if everything is always on sale, then the sale price becomes the new full price.” LivingSocial, one of the major daily deal sites, reported that it sold more than four million daily deals between April and June this year. The company pointed to massages, Mexican restaurants, yoga classes, pizzerias, mani/pedis and golfing vouchers as being the daily deals that consumers signed up for most. LivingSocial, as a ClickZ report pointed out, did not say how many of the four million deals were redeemed. A new site is looking to eliminate any boredom associated with daily deals by finding offers that are relevant to the individual tastes of members. KoalaDeal is said to use information gleaned from a consumer’s past purchases and interests to find matching deals on other sites. According to Springwise, “Users begin by teaching KoalaDeal about their tastes and interests; they can choose categories manually or simply let the site automatically scan their past purchases in Gmail or their interests as indicated on Facebook or Twitter.” KoalaDeal then uses the information provided to go searching for deals.

Discussion Question:

Are consumers beginning to tune out daily deal sites? What can be done from the merchants’ point of view to make these types of offers more effective?

RetailWire BrainTrust Comments:

Bill Emerson — President, Emerson Advisors

Like all new technologies, daily deals took off largely on novelty. After all, crazy promotional prices have been around for a long time. Professor Yarrow is absolutely right. If it’s always on sale, the sale price becomes the new retail and the novelty wears off, leaving a lower margin. KoalaDeal is on the right track by using the technology to zero in on the preferences of the user, although this is basically just another application of CRM. Competing on price has always been a footrace to the bottom and wrapping it in whiz-bang technology doesn’t alter that fact.

Fabien Tiburce — President, Compliantia, Retail Audits & Task Management

I was bored with Groupon in about one week. Seriously, even I was surprised how fast the excitement wore off. At the end of the proverbial day, customers want to buy what they want to buy (more or less), not what companies are trying to sell them. This model might work better if there was more discretionary spending. (Then again if there was more discretionary spending, people wouldn’t flock to deal sites in the first place.) All in all, the electronic deal business may turn out to be largely a flash in the pan.

Ryan Mathews — Founder, ceo, Black Monk Consulting

The short answer is “yes.” Retailers have leapt with both feet into the discount death spiral and, as a result, price integrity is going the way of the buffalo.

How does an addict recover from their addiction? The simple answer is that they stop practicing the addictive behavior. Of course that often requires an intervention and I don’t see hordes of consumers and/or manufacturers rushing in to save the retail community from its compulsive and self-destructive behavior. The answer? One day at a time. In this case building consistent pricing and price integrity back into your operation. This requires offering competitive prices but knocking it out of the park in terms of product, service and/or experience. Consumers may love those deep discounts but they’ll never respect the retailers in the morning. There are a lot of ways to build loyalty but buying it isn’t one of them.  

Anne Howe — Founder, Anne Howe Associates

Wouldn’t it be nice if retailers offered a deal on an exciting retail experience instead of just a price off a product? I’d like to see an offer for a seminar at a retailer that teaches shoppers something. For example, Ethan Allen could have an event to teach shoppers how to mix fabric patterns with confidence, and offer a discount on a piece of furniture. Lowe’s could offer a seminar on how to compile and complete a checklist for a self-managed home energy audit for the winter and offer a deal on the caulk or something similar. Value is a shopper concept that extends far beyond the price.

Camille P. Schuster, Ph.D. — President, Global Collaborations, Inc.

The daily discounts are fun for awhile. Then the discounts need to be greater and greater to be attractive. Then comes the day I need to make a purchase and there are no deals for it. Another sale may pop up so the question is, do I wait for the next sale or make a purchase? Then, especially if I do find a sale, do I really want to spend time looking through all the deals or just wait until I need something and look for a sale? Maybe it depends upon how much free time I have or how I want to spend my free time….  

Lee Peterson — EVP Creative Services, WD Partners

It’s worse than just deal sites. Ever since ’08, just about every major retail brand (except the very strongest) has emphasized price in some way, shape or form. Now, consumers are left to choose between several brands in whatever category that claim to have the best every day low prices (EDLP). The home improvement category is a great example; not a day goes by when you don’t see an ad from one of them claiming that they have the best prices than the others. It’s time for retailers to think of something other than price (quality? design?) to differentiate because, ok, we get it, you’re cheap! What else makes you better?

Gene Detroyer — Entrepreneur, Advisor, Consultant, Professor, Independent

We have had several discussions regarding Groupon in particular. Not too long ago, there was great hoopla on its value. My comment then was that it is overvalued. It has no Sustainable Competitive Advantage. Just a few months later, that is pretty clear. What can the merchants do to make these offers more effective? Don’t do them. They are nothing more than a pricing down of a service they offer and revaluing the service in the consumer’s eyes. Are people tuning out? Not likely, but they are focusing more on buying deals on services they would normally use anyway. I would very much like to see the conversion statistics for trial or customer switching that results in these deals. My guess is that they are very low. For those who regularly use salons or dine out, it would not be unreasonable to never pay full price again for these experiences.  

Matthew Keylock — Senior Vice President, New Business Development and Partnerships, dunnhumbyUSA

Part of the challenge is around the business model for these solutions. In general, each deals provider sources and executes the offers, and this is where they make their money and control targeting and measurement. Each solution in isolation looks good and makes sense, however when you look at it from the customer (shopper/consumer) view you see it in a different light. Customers are probably being bombarded by duplicate and conflicting offers all the time and are seeing first-hand the incredible inefficiency and waste in the system. This is compounded by the fact that most engines are optimized for short term response and therefore short term solution provider (and probably brand) rev-gen, rather than optimized for the customer. They are about doing things “to” customers not “with” or “for” customers.

Read the entire RetailWire discussion

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