DEATH of Local Deals!

Ok, many of you are thinking it, but I’ll get right out and say (write) it.

What the hell is going on? What happened to offers and deals on Local services and businesses? As the title suggests, some Daily Deal sites have essentially killed off Local offers from their inventory. I understand why, but that does not mean I like it, nor will consumers like it.

Some Deal sites are looking less and less like Deal sites and more like liquidation centers for cheap products. Product manufacturers and importers are using Daily Deals sites as their personal liquidation sales force. Many deal sites are adopting products as part of their sales inventory. In fact some have atleast 60% of their inventory or sales focused on products; filling their inventory slots with gadgets, toys, trinkets, flying fish, pillows, cheap bracelets, etc. Most of these deal sites are starting to look like, well, NOT local deal sites at all.

 

What first started as a way to provide inexpensive gifts for the holidays has morphed into a bad tasting soup of product offers….local offers be damned.

Despite a “Me Too” mentality in this space and large volume potenntial, some deal sites have chosen to stay away from these types of products. Other sites are offering as many products as they can.  Is it troubling? You bet. Was it expected? You bet. Will it last? You bet. Will consumers like it? Not at the present moment. A better product strategy needs to be executed from these deal sites in order to winner over customers in the long run.

Here is my take:

  • When pillows and flying fish sell for over $200,000 in sales on some sites, it is hard for other sites to ignore. What started with 1-2 sites has now ballooned to about 50% of all deal sites promoting products. Some cheaper than others. The lure of quick sales is a motivational factor here even if margins are significantly lower than promoting local merchant inventory.
  • Deal sites need to be VERY careful here. Is this really a strategy that they wish to follow? The reason why they are adding products is because they are chasing volume, chasing revenue numbers…because they have to.  Filling inventory with products is an easy strategy. Simply negotiate with an importer or distributor of goods and presto, you have instant inventory up the wazzoo. Certainly much easier than trying to convince local merchants to run deal offers. So it is perfectly understandable why many deal sites have chosen this route. Filling inventory is easier than dealing with local merchants and it provides a much needed revenue alternative.
  • The problem with this is that every other daily deal site basically has the same relationship with these product importers and, thus, promotes the same inventory. This makes each deal site (especially the larger ones in Canada) indistinguishable from one another. Hence their brand is being severely commoditized. If a consumer can get the exact same glove, fish, pillow, etc on many sites then what exactly is the point? Where is the competitive value proposition, where is the motivation to stay loyal to one site. The answer, at the present moment, there is none! And deals sites are exchanging short term revenues for a whole lot of branding and loyalty pain down the road.
  • Consumers will eventually tune out because the more cheap products these sites push, the more they become a basic ecommerce store full of cheap goods that consumers don’t really care for. These Deal sites are becoming online product liquidation centers; and there are thousands of those already. These deal sites are nothing more than………overstock.com in Canada. And you know what, there are far better products on Overstock.com….and they ship to Canada. Hell, Amazon and eBay have more selection and better items as well. Many at 50% off or more. So this is a warning: Deal Sites…be careful. Do not commoditize towards “Me Too” cheap products.
  • What exactly happened to selling and promoting local offers? I guess too much of a hassle for some sites. It does indeed cost more to offer local services versus having access to thousands of products that can be drop shipped to consumers. However, this is why consumers got excited about this concept…they could now buy great offers from their local merchants, all online with ease. Unfortunately, the following have participated in the difficulties of deal sites promoting local merchants:
    • Too much competition from other deal sites
    • Merchants need convincing
    • Margins have significantly dropped (started at 50%, now averaging 30-35% and some as low as 15%)
    • Profitability from promoting merchants within this business model has proven difficult
    • The novelty has worn-off: Consumer no longer rush to buy when they can see the same offer in 2 weeks on another site

I am not suggesting that deal sites stop offering products. What I am suggesting is that they stop being fu&%#n lazy about it and adopt a better product mix strategy.  Deal sites should:

  • Provide products that have a theme to them instead of random products. Be a leader in a category instead of a “Me too” in every random category.
  • Provide quality products, from quality retailers. (Wagjag recently sold over $400,000 worth of diapers in partnership with well.ca). Diapers made sense to their product base, it is an item that is needed. No one needs another cheap rubber bracelet.
  • Have products under a category called “Products or Goods”. This allows consumers to search in that section if they are so inclined. Having products mixed in with local offers from local merchants simply muddles the consumer experience.
  • Enable consumers/members do receive emails ONLY on the categories they want and even better if it is on the product types they want. Given the amount of inventory on some sites, if members were to receive emails for every product promotion, well, that’s a sure fire way of losing customer interest.
  • Be more creative and stop selling the exact same products seen on all other deal sites. If deal sites continue to do this, then consumers will not be able to distinguish one site from the other or justify to themselves why they should be loyal to one site over the other. Consumers will simply follow the cheapest price or the best deal. This has already happened with electronics and computer products, where there are so many sites online that promise the best price, the best deals. Consumers chasing price do not care where they buy these products from.
  • If you must, then take on the risk and start holding inventory or importing products yourself. (or partner with an online retailer to do so). This will increase your margins. (note: this strategy is not for everyone, it is risky, will eat up more cash flow, but it will improve profits if managed effectively)

 

My prediction:

  • No choice: Promoting products will become even more popular for Deal Sites. Some will have no choice because they see it as the only way they can actually drive some revenue to their site faster.
  • Identity Crisis: Many deal sites will commoditize themselves by offering too many products and too many that are similar to other sites. These sites will lose customers because they do not know who they are. Are they a local merchant deals site or are they just another product ecommerce site with deals. The message to consumers better be clear.
  • Inventory: A handful of sites will actually count on product sales for the majority of their revenue. In some cases I fully anticipate that a handful of sites will start, believe it or not, taking inventory of these products that they import directly from overseas. This is the only way for them to increase their margins. If they increase their risk by taking on inventory, then they can improve their margins. This is a big risk. Importing, warehousing and shipping inventory is not for everyone. Nevertheless, some of them will do this. However, at that point, they are no longer Daily Deal sites as presently defined. They will simply become one of thousands of ecommerce sites that provide great products deals. Overstock.com, Amazon.com, ebay, and thousands of others are now the competition. Local deals will still be available, but will not be major focus.

 

Good luck to all sites who choose to promote products and especially to those who take on inventory. However, do remember to continue promoting good, quality offers from local merchants. Wasn’t that the point of this industry in the first place? Local commerce, not just ecommerce.

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