Daily Deals Manifest Destiny - Can One Live On Deals Alone?

By Randy Smith, Mobile Wallet Media
Thursday, August 30th, 2012

Daily Deals are indeed not dead, but must evolve and transform if they are to survive the mass adoption of the Mobile Wallet. Daily Deals as we know them will continue to exist, but they will need to reduce fees and discounts drastically to reach their 'Manifest Destiny.'


So just a couple weeks back I wrote about how Daily Deals are perhaps too dysfunctional to survive. I wrote the article in response to the slew of bad earnings and news reports about Daily Deals companies. This is the first article in our 'SuperCommerce Series.' Tighten your belt it's going to be a wild ride!

Daily Deal companies will need to change their revenue, distribution and redemption model to survive the coming 'Mobile Wallet Revolution.' In my previous article on Daily Deals, I spoke much about Daily Deals limiting their market with high fees and discounts. I'll add a bit to that here and now.

If Daily Deal merchant fees are reduced drastically and allow merchants to set lessor discounts or rewards, more like LevelUp, they will have a chance to provide deal vouchers for just about anything. That's right, I said anything! So yes, it will be possible for "One to Live On Daily Deals Alone!"

Well, perhaps not anything, as we know money can't buy many things.

I see this as a new "Mega Trend," one that will completely transform not just mobile commerce, but all retail commerce! This trend itself could be every bit as disruptive as mobile, the web and the mobile wallet itself. The implications of this transformation will alter all retail marketing and advertising! If you think hard about this, you will realize the spending and purchase decisions of consumers will be altered once Daily Deals are in the Mobile Wallet. With the consumer armed to carry as many deals as they want, this will prompt the consumer to buy more deals as they are easier to manage than the current, 'Clunky.' and non-seamless, redemption methods. Therefore, if the purchase cycle is moved forward to "Lock-in customers and future sales," then marketing and advertising will need to redraw their lines around this.

So is what I'm saying here that Daily Deals will become like a new virtual currency? Yes! If this new breed of Daily Deals is convenient enough and enough brand name retailers adopt this model, consumers should scoop them up like crazy. So rather than a high-discount and costly coupon or voucher to drive consumers to the store, a deal with a lessor discount, say a $110 voucher for $100 in cash. LevelUP has already shown us a glimpse of this type of offer. Convenience is traded for larger discount. Consumers will take a "Good Deal," and so may merchants, if it is easy to obtain and redeem. This model I believe will be a powerful force to direct, not just traffic, but lock in loyal customers and sales in advance. If one goes down the rabbit hole deeper, if a consumer has spent their funds on "Mobilized Daily Deals," then the decision to where they shop is done.

These types of deals have long been available during the holiday season via bonus gift card offers and consumers may purchase gift cards online at a discounted rate. But the inconvenience of carrying multiple cards has made it impractical at scale. With the Mobile Wallet, such barriers are removed.

OK, now onto distribution. If you are a Daily Deal company, you are ripe for disruption if you are not plugged into and integrated with the major Mobile Wallets. Why? Because the convenience associated with receiving and redeeming offers via the Mobile Wallet will demand it.

Imagine if redeeming a Daily Deal was just like making a purchase using the Starbucks Card Mobile or LevelUp app. This is the future of Daily Deals and really offers period. Mobile Wallets will make getting great deals easy, simple, convenient and fast! Deal companies, merchants and marketers should get on board this "train of thought" or be left behind with a worthless ticket to nowhere.

So with, Google, PayPal, ISIS, MCX, Square, LevelUp and more Mobile Wallets launching this Fall or 2013, don't you think they might be interested in offering a high-margin, Daily Deal service of their own? Well, one may say it may be easier to just partner with Groupon or Living Social or another of the myriad of the high-volume, Daily Deal companies. On the other hand, with the stock hit Groupon has taken as of late, perhaps they are ripe targets for acquisition by Mobile Wallet companies. Via acquisition they may lock in merchant relationships, a sales force, a platform and revenues, all in one fell swoop. Or perhaps Daily Deal platform infrastructure companies will be ripe acquisition targets? Mobile Wallet companies are all armed with a massive customer base and billions of bucks. Buying infrastructure alone could make for an exellent investment. Of course some of these companies may already own a Daily Deal platform.

Amazon, which has a large investment in Living Social, may stand the best chance to stand firm and negotiate deals with all major wallet players. Amazon, has yet to make a move or tip it's hat with regards to it's plans for a Mobile Wallet, even though they are very adept at processing payments.

Apple, with it's much anticipated launch of it's iphone 5, with or without NFC and possible announcement that Passbook will become a complete mobile wallet, is news we are all eagerly waiting to hear.

First Data launched a new service named "OfferWise" at SXSW this past Spring. To quote First Data from their YouTube page "First Data's OfferWise solution is a revolutionary product that allows consumers to electronically link offers and deals to any payment card or mobile wallet." The release by First Data in June,  is titled "First Data OfferWise Solution Enables Universal Commerce for Offer Publishers and Merchants." First Data, if you are not aware, processes an estimated 60-65% of all retail transactions. If OfferWise can be a "platform in the cloud that seamlessly ties offers to Mobile Wallet," they could prove to be a platform of choice for Mobile Wallets and one not to ignore. 

Daily Deals in the Mobile Wallet, for clarity's sake, will not actually be a "gift or prepaid card," but will be a voucher, that may be redeemed via one's Mobile wallet, at a specific set of retailers, for a limited time. The other side of the equation to enable Daily Deal to be processed has to do with the integration to Point of Sale (POS), which I've touched upon in recent articles, and hence will not belabor again now.

How Mobile Wallets, Daily Deals, POS vendors and processors all decide to work together to build the future of Daily Deals and mobile commerce will be interesting to watch, but rest assured and God-willing, I will be here to comment upon it or be part of building it.

To wrap it up, and set up my 'Shameless Plug of the Day,' as a brand new journalist and as a FIRST-TIME EXPECTING DAD, I'll leave some meat on the bone for a later discussions and paid consulting. Just remember to tell others you heard it here first, refer others to read my articles and hire me to consult. I'm also open to offers I cannot refuse.



Mobile Wallet Media is a news media, analyst, marketing and consulting firm focused on the future of mobile: payments, commerce, daily deals, security, loyalty, marketing, prepaid cards, virtual currency and the convergence of them all with social and local. Randy Smith, the Founder and Chief Editor of Mobile Wallet Media, was also the primary founder, inventor and former CEO of MobilePayUSA, a TechCrunch Disrupt Startup Alley Winner in 2010.

Are Daily Deals Too Dysfunctional to Survive?

By Randy Smith, Mobile Wallet Media
Thursday, August 16th, 2012

Daily Deals have had their 15-minutes, or quarters of fame, but must change their behavior to live on. The gravity of dire profit reports is requiring the industry to seriously reconsider their business model.

Less than 5 years ago it seemed as though getting retailers to engage in selling mass offers of 50-90% off + paying 50% of vouchers sold to marketers, would never happen! But thanks to desperate merchants and cash-strapped consumers across the land, Daily Deals thrived. 

The margins with deals for merchants is horrific, so why do they engage? Many retailers have had need to go 'All-In' and have exhausted all other options. Business lines of credit dried up in 2008 - 2009 and getting a refinance on the home was no longer an option. Who really wants to pay 40-60% for cash advance on 6-months of credit card receivables or for a 90-day hard money loan?

Also, if you have not noticed, Tier 1 & 2 retailers have steered far away from Daily Deals, with certain exceptions like Old Navy or Nordstroms Rack. My guess is they thought it a fast way to clear seasonable inventory and to just to dip their toe in the water to see how hot Daily Deals really were.

So if brand name, local, regional or national merchants have not engaged and do not appear they will any time soon, what deals are there to be sold? Does Daily Deals make sense for non-desparate merchants to do? Yes!

As a rule of thumb retailers and restaurants have margins near 15-25%, but some service business' like massage, or laser eye may have margins of 60%-80%. So giving 50% off services to get new customers in the door does make sense as long they do not sell too many deals and never offer a deal again for at least a year.

For business' with 25% margins it still can make sense if they offer small, or restrictive daily deals only good on slower days of the week. Also, up to 50% of deals are not redeemed. If a restaurant offers a small deal of $10 for $20 in product, but their customers still spend an average of $40 at dinner, then they still walk away with $25 + $2.50 for deals never redeemed. It can end up working like a 25-30% off coupon. But even this is steep discounting. I'll never forget the words I heard several years back from a loyalty guru named Steve Schroeder of AmeriCardGold: "Discount is a Dirty Word." He was hilarious! I kept saying the word discount and he scolded me like I had said a four-letter word.

Selling vacation packages makes sense for deals as well. With the 'Great Recession' still waffling, people still want to go on vacation and the cruise lines and resorts are desperate for business. They have massive investment in overhead and must fill the boat or resort at 50% off prices and then hope to make their profits by up-selling their guests once they arrive. It kind of works, because the guests feel as though they got such a great deal that they are more willing to spend more on food and fun.

By the way, as a rule of thumb that Priceline.com learned. The captain of the Star Trek Enterprise can never retire, but he must always come back and save the ship! Priceline recently as it saw it stock drop after they decided to end William Shatner's run as the "Priceline Negotiator" when he met his demise in the last commercial. But when they decided to bring him back Priceline's stock got a big bump. William Shatner became Priceline's spokesperson for zero cash and reportedly, according to CNBC, he cashed out with 20 million when they went public. I love America and the entrepreneurial spirit that is shown daily by small and big business owners alike. They just float and meander along, while eating chocolates on the couch and watch the government work their butt off to build their business for them. Not!!!

Daily Deals in reality are more like steroids than a sustainable way for small retailers to gain sales. In fact the Daily Deal relationship is a dysfunctional one. Successful merchants spend 1-15% of revenues for advertising and marketing costs. This does not include This wide variance is a function of margins and volume. Grocery stores and auto dealerships spend about 1% of revenues of marketing, while restaurants and clothing stores might spend 3-10% and services based business' may spend 15%.

For deals to survive they must more closely align with reasonable fees and lessor discounts, but they must do much more than this, they must go through a metamorphous to fly another day. And on another day coming soon, I will provide the next chapter (Daily Deals Manifest Destiny is set for publishing on August 29th).

Daily Deals in their current form are too dysfunctional and destructive to be sustainable. In any functional relationship, their is always a Win-Win and not Win-Lose outcome. Yes deals have their place in the world, but they are more akin to Check-Cashing stores. Like steroids used in temperance they can work to heal. But if deals are depended on they will permanently destroy margins and condition customers to only return with a great deal. Merchants that focus on sound core retailing fundamentals will always win in the end. See my "SEVEN main reasons why 20% of customers make 80% of purchases" in week 3 of our 7-week series: "The 7 S's Required for Success in Mobile Payments."