What’s the Deal with Deal of the Day Sites?

Marni Weinberg - February 8, 2011

Nearly everywhere you turn, someone is talking about that amazing deal they just got on Groupon, or the too good to be true promo they took advantage of on LivingSocial. All this talk may leave you wondering…What exactly are Groupon and Living Social and more importantly, what’s the catch? Basically, what’s the deal with Deal of the Day sites?

Here is the lowdown…
Groupon started in November 2008. According to the FAQ’s on their website, Groupon is “a deal of the day website that feature’s an unbeatable deal on the best stuff to go, see, eat, and buy in your city.” Click here for Wikipedia’s definition.

LivingSocial is very similar to Groupon, in that it offers daily deals too. Though maybe not as well known as Groupon, according to Wikipedia, LivingSocial was actually founded a year before Groupon. They did not start offering Deals of the Day; however, until after Groupon had already made a name for themselves.

So what’s the catch? There is no catch; at least not for the consumer (more on this later). These too good to be true deals, are not too good to be true. I know what you’re thinking. How could I actually get a $50 gift card and pay only $25? Groupon and LivingSocial (and many other new Deal of the Day clones that seem to be popping up on a regular basis) pride themselves on offering deals that are simply too good to pass up. In fact, they are banking on that concept.

Here’s how it works for retailers: The retailer who is offering the Groupon or LivingSocial Deal of the Day pays nothing to showcase their service or product; however, Groupon/Living Social etc. will take somewhere between 40 and 60 % of the earnings.  For this reason, this model will not work for every retailer and in some cases could unfortunately end up hurting more than helping. It truly depends on how much margin a company has with their products or services. Think about it this way: If you normally charge $100 for a product and are offering it for $50, then paying Groupon $25 per sale, you better make sure your margins will still allow for a positive ROI, or a strong lifetime value for that customer.

Here’s how it works for consumers: As a consumer, you simply have to sign up to receive daily deals in your city and voila! The daily deal in your city will be waiting in your inbox for you to take advantage of! On the go and rarely log onto a computer? No worries. Groupon has an app, as does LivingSocial.

Although Groupon is the current 500 pound gorilla, LivingSocial is no doubt giving them a run for their money, especially after receiving a huge (and by huge I mean $175 million) investment from Amazon. Also, don’t forget about Google; nobody sticks Google in a corner. Not long after they (reportedly) tried to buy Groupon for $6 billion dollars and Groupon (reportedly) said no, there is talk about Google creating a daily deals site to compete with Groupon called Google Offers.

Deal of the Day sites are quite popular and do not appear to be going away anytime soon. If anything, they will continue to grow and offer new opportunities for both consumers and retailers. Curious consumers should sign up to see what they’re all about. If the daily deals don’t interest you, simply opt out. At the same time, retailers ought to invest the time to learn more and determine if these sites are right for their business. 

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