Over the course of the past 3 years or so, Daily Deal campaigns have been dominated by a handful of merchant categories. Some have been so rampant that the daily deals industry has, at times, been associated only to these types of merchants. The most popular categories started off of course as Restaurants, Spa services and local activities. Since then, the industry has “matured” to include merchant categories of various kinds.
Let’s look at deal categories in a 4 step evolution process.. perhaps 5.
Step 1: The originals: These either caused excitement from consumers or lots of profit for deal providers. They included, as mentioned above, categories such as Restaurants, Spa Service and Local city activities.
Step 2: Adding Inventory: As more and more competition from other deal providers impacted deal inventory and thus margins, offering further merchant categories was necessary. Major categories such as Travel deals and Products deals were introduced, significantly adding inventory to the sector. In adding products, a deal provider can take care of all their inventory issues for the month instead of trying to convince 15-20 merchants per month to run a deals campaign. For some deal providers, products now take into account over 60% of revenues. Which leads to the question of… whether these deal providers should still be considered as Local Daily Deal companies? Since this category, as well as travel, have tight margins, further merchant categories needed to be offered to improve margins. Which leads us to Step 3.
Step 3: The Niche categories. As such, other niche categories came about in order to impact margins. I do not know if consumers were asking for these or not, but they certainly have purchased them in droves and brought large profits for both deal providers and the merchants within. It has also brought great deals for consumers. We are talking about categories such as the much “loved” teeth whitening, Yoga or laser hair removal. Given the amount of deals sold in this country in those categories, we Canadians must be really, really, really well groomed, well tones, hairless, white smiling consumers. (for instance, Tuango sold, on 2 separate deals…over $1 million worth of laser hair treatments over the past 6 months….that’s a lot of hair)
Step 4: Mainstream merchants: As other deal providers added niche categories and continued with product deals as well, causing further margin erosion and an indifference amongst consumers, further merchant types were added into the inventory in this country. This is where more mainstream merchants started showing up consistently across the country. At this point, it is safe to say that Daily Deals have finally started to become a standard marketing option for merchants across the country. Sure, you can find all sorts of merchant categories being promoted in any given week, but the following category of merchants are some of the top deal categories across the country over the past few months.
- Automotive service: huge amount of inventory
- Bars & clubs
- Exercise services (boot camps, classes, gym, etc)
- Cleaning services
- Dance classes of all kinds
- Medical Services off all kinds (Dermatology (huge), Chiropractor, botox, etc)
- Clothes Stores
What do you notice? 2 things:
- All of these categories have high margins
- With the exception of clothes stores, they are all in the services industry. Where there is a much higher fixed cost and lower variable. Thus, offering deals to consumers and a commission to deal providers is more sustainable as a marketing practice.
Is there a 5th step?
Certainly. I believe deal providers will continue to reach out across all sectors of the retail market. At this point, “Daily Deals” has now become a part of the marketing mix for a business. As businesses determine their campaigns for the year, as they look at and evaluate Search Engine marketing, online ads, CPC campaigns, CPA campaigns, distribution partnerships, Radio ads, TV ads, magazine and newspapers ads, and coupon advertising, they are now more comfortable in also including Daily Deals as a line item in their marketing plan.
What other categories are you seeing as becoming important in the Daily deals space?