Does offering your product or service on a daily deal website damage your brand?
The modern business environment offers numerous ways to promote products and services for any company.
The modern business environment offers numerous ways to promote products and services for any company. One of these ways, online promotion, has proved to be efficient and low-cost, which is why the daily deals, online coupons, and location-based offers are so plentiful. It shouldn’t be a surprise that now they are considered the ‘go to’ for consumer bargain hunters.
Daily deals particularly work with new products or brands with little-to-no consumer awareness. For example, consider a hypothetical company that have decided to sell ladies footwear that is not associated with any known brand. This new company is unknown to customers, which might make them less likely to buy. But running a discount on a daily deals site, can make the shoes more attractive to the consumer. Thus, at first glance it may seem that daily deal sites may be useful to these newer companies wanting to move inventory.
But is it possible that these selling vehicles could damage the value of products and services in the short-term… and in a worse case scenario, potentially, permanently damage the entire brand of established companies?
First of all, online websites that offer daily deals typically charge companies to utilize their service. For example, websites such as Groupon or LivingSocial may lay down a condition, which requires a particular company to agree to set a specific price for its product. For example, in the case of Beats headphones, a recent discounted price was at $229 instead of the typical retail price of $279. Great discount for the consumer, but the retailer must think of more than just the $50 savings that goes to the consumer: these companies face high operational costs associated with the usage of promotional codes, QR codes, etc., in which daily deals work. For example, the company that produces Beats headphones has to train its staff to accept the promotional codes from Groupon, deal with the problems associated with lacking or excessive inventory, or deal with the inevitable complaints or complications from these atypical transactions.
Another indirect factor that contributes to the brand damage that is caused by daily deals is the decreased amount of tips that the company’s staff receives. Daily deals sites may provide discounts to services such as car detailing, dining, spa procedures, etc. The employees of the companies that provide these services usually receive a substantial amount of tips to supplement their income, but daily deals obviously decrease the amount of such tips because of the lower value of the service itself. If the consumer tips only on the paid service (not the value of the service) then this decreased income would naturally lead to staff dissatisfaction. Another indirect effect of daily deals is that, despite the widespread belief that they attract new customers, they mostly do not work this way. In fact, daily deals are more often used by old customers who just utilize them to decrease the price of the familiar products and services, for which they would have paid more if daily deal did not exist at all.
Taking into account all these effects of daily deals, once could draw a conclusion that they indeed damage a company’s brand. In addition, to further support this conclusion, there is a recent research study regarding the impact of Groupon daily deals. The research concluded that Groupon uses the existing rating system of Yelp to assign ratings to particular products and services.
HBR noted that after proposing a product or service on the Groupon website, a company usually loses some points of its Yelp rating. Sometimes, the decrease of the value of the product offered using the mechanism of daily deals is so significant that the customers rate this product a full star lower than before.
Consequently, it is possible to sum up the effect of daily deals this way: daily deals make promotional process significantly more complicated and damage the brand in a direct and indirect way. Despite the fact that all companies take equal risks while using daily deals to promote their products, the companies with established brands risk more, because their brands lose perceived value in the eyes of their customers and do not attract many new customers. Daily deals also negatively impact the human resource management strategy of the companies that use them, because their staff receives fewer tips and may even underperform because of the lack of motivation. Daily deals increase the complexity of accounting procedures, require significant investment in the training of employees, and eliminate the flexibility of the pricing strategy. Generally, it is possible to speak about daily deals, as if they are a chain fettering the long-term marketing strategy of a company. Daily deals may seem attractive in the short run, as they may help new companies to quickly distribute their products and services but even in the short run they significantly limit the ability of a company to make its marketing strategy more efficient.