How is it possible for an industry to go from being the darling of the business world and the hottest thing since Facebook to being a basket case where the stock of the leading player declined almost 90% in the year since it went public?
That's exactly what's happening in the daily deal coupon space, where Groupon announced depressing Q3 numbers last week and Amazon subsidiary LivingSocial laid off 10% of its workforce – 400 people – also last week.
Groupon is said to account for 50-55% of the market and LivingSocial 20-25%, so their initial worries that one problem for growing their industry would be the low barriers to entry have proven unfounded, as no one in their right mind would enter this market with a new launch at this time.
I believe I may have stumbled across part of the problem the other week, when I went into a restaurant on a busy Saturday evening looking for a table on spec. The greeter said there would be something in 30 minutes, but “only if you're not paying with a coupon.” In other words, we don't want your business if you're a coupon customer.
There are many other anecdotal stories of people who have suffered negative experiences when they've revealed that they are using a coupon. Wait staff suddenly turn unfriendly and the portion sizes mysteriously shrink compared to other “full-paying” customers.
The quality of the bottle of wine with the meal declines and coupon users often end up paying well over the value of their deal just to make it tolerable. Then they feel compelled into leaving more than generous tips to assuage the guilt trip that has been laid on them by their servers.
Admittedly this is a very narrow example and a relatively unscientific survey, but I know I'm amongst many people who have also shared these experiences. Unlike clipping a coupon from a newspaper or magazine to get a discount on groceries, most online daily deals revolve around personal experiences and customer service.
The upsides of the daily deal were driven by consumers – mainly women – attracted by cost and time savings, the personalization factor, and the ability to try new experiences at an affordable price.
But if the daily deal industry is going to be labeled with brand values such as the ones I have experienced, then it has a serious communications problem to solve – and it needs to start solving it fast. Otherwise it might find its own deal date expiring.