Daily Deal Businesses: The Promises and the (Operational) Anguish
Continued from earlier post: Is the GroupOn model sustainable?
The stats are telling: Kunal Bahl and Rohit Bansal, founders of Snapdeal.com which is barely an year old already have 5 million subscribers as on June 2011. They are targetting Rs100 crore in revenues in 2011 and plan on making Rs300 crore in 2012.Kunal aims at Rs.500 crore by 2014.
Snapdeal, a poster boy for the runaway success of daily-deal websites, gets local merchants to offer “deep discounts” on products and services to the value-conscious Indian consumers. For merchants, this offers an affordable route to promote brand and an easy way to sell the so-called ‘distress-inventory’ — such as empty seats on a last-minute flight.
Snapdeal, a poster boy for the runaway success of daily-deal websites, gets local merchants to offer “deep discounts” on products and services to the value-conscious Indian consumers. For merchants, this offers an affordable route to promote brand and an easy way to sell the so-called ‘distress-inventory’ — such as empty seats on a last-minute flight.While there is little doubt about degree of initial success, questions remain about the long-term sustainability of the underlying business model of websites like Snapdeal, modelled after Groupon, which pioneered the concept in US.
To understand the efficacy of the Daily deals business models, one must study the US markets where Google, GroupOn, Facebook and LivingSocial have been working at businesses and consumers on this model.
Rocky Agarwal, a US based local products specialist recounts the story of Jessie Burke saying that “running a Groupon was the single worst decision I have ever made as a business owner thus far”. Rocky has offered the following reasons to the unsutainability of the Groupon/Daily Deal model:
1.There is very little information on which merchants can make decisions
2.Tracking (of Coupons) and infrastructure is really getting to be a difficult problem
scheduling of deals are based on factors that optimize the deal for Groupon, not the merchant. Thus traffic walkins could be unmanageable at the merchant’s end at a point of time when they leats require it.
3.Daily customers are really deal hunters as against being loyalists. Thus the traffic keeps moving around.
4.Merchants make money when customers buy more and not just limit themselves to deal value. If customers only use deal values, the ability to cross sell to higher footfall traffic dies. This is an opportunity for the merchant to make higher margins on related products. However, daily deal customers seldom move beyond the deal value.
5.Operational glitches like lack of training.
6.All these mount upto customer dissatisfaction which is pernicious to the initial cause of taking the business to a wider cross section of people