Selling Products as Daily Deals? Do it well, or else.

We have written several times about how Daily Deal companies are focusing more and more on promoting product deals as opposed to local service deals. Some Daily Deal companies have product sales at over 50% of their total sales. This is not necessarily a problem. Rather it is an evolution of the space. However, if executed poorly, the strategy is filled will pitfalls and problems that many Deal companies will be inexperienced to solve effectively or inexpensively.

We recently read a good post by Jaffer Ali, the CEO of e-commerce company on the pitfalls of selling products for a deals company. We’d like to share his views with our audience. His original views were posted thanks to DailyDealMedia.

Below is his short list which he stated as not exhaustive by any means:

1)    Sales Tax Issues: The manner in which deals are presently handled, daily deal sites are literally selling the product to the consumer with vouchers redeemed on the vendor site. Attempts to push sales tax responsibility to the vendor (like with local restaurants) will not survive a state sales tax audit. This puts the daily deal companies like Groupon and those with a lot of markets at risk for sales tax due to nexus in each jurisdiction. (we at GroupBuyingCanada are unsure as to the local provincial laws concerning this tactic)

2)    Product returns: Having owned one of the largest fulfillment companies in the country for 7 years, shipping for Target Stores, MGM, Garth Brooks, Nintendo and many others, I can guarantee returns are going to happen. And how they are handled will determine the success of holding on to the 4%-10% customers that return merchandise. The higher the price of the deal, the higher the return percentage by the way.

3)    Customer Service: Related to #2, there are a multitude of issues surfacing that must go to the vendor. We work with several daily deal companies and receive calls directly from consumers. How many? 11% of all products sold results in a customer service call or issue. 9 out of 10 vendors do not know how to handle this and the daily deal company is extremely at risk. When things go wrong, the daily deal site cannot blame a restaurant and actually assumes 100% of the consumer anger.

4)    Inventory Issues: Coupon daily dealers are clueless about inventory management. So what they do is tell the vendor that they have sold 5000 of X and the vendor must stock up on this. Then after only 1000 are sold, they say, “sorry”. After missing the projection once, it is hard to believe the daily deal folks who really have no idea how many they can really sell. So they then run the offer and order the product after. Disaster customer service ensues because consumers expect to be shipped within 3 days of ordering.

5)    Forget Breakage: People who purchase products are much more likely to want the product immediately. While breakage accrues to the vendor, if a daily deal site becomes the vendor, they cannot count on the same percentage as “unredeemed” spa vouchers.

Groupon is already doing its own fulfillment….In the past 90 days, we have been contacted by 27 daily deal companies to offer some of our hottest products to their audience. We thought this would be a huge business and even sent a press release out.

But we quickly discovered that many of these sites had one foot in the grave and the other on a proverbial banana peel. Few of the sites that contacted us cared about the pitfalls and only saw the benefits. They did not want to sell products the right way. With a few notable exceptions, we kept hearing Albert King singing, “Everybody wants to go to heaven, but nobody wants to die.”

A good post by Jaffer. In Canada, we see numerous deal sites sell products at volumes where they can most certainly not keep up with customer service issues, return issues, credit issues, etc. These Deal sites better start becoming knowledgeable on how to operate an eCommerce business as opposed to a Daily Deals business. It is not good enough to pass the responsibility to the drop shipper, to the product wholesaler. In most of these cases they don’t have the customer service infrastructure to handle proper service to YOUR customers either and protecting your brand is not their first priority.

So what can be done? Without over simplifying the situation, it all starts with who your team is; essentially start hiring ecommerce and product people. Hire buyers, not sales reps. These buyers can source and negotiate better offers and terms for your inventory strategy. Hire inventory management people, hire more customer services reps, and certainly hire eCommerce executives. Oh yes, for goodness sakes, please only work with reputable wholesalers, importers and distributors. Putting your brand experience, your customer service and your product strategy in their hands is not the best strategy, especially if they are selling the exact same product to every other daily deal and ecommerce service across the country.

So go ahead and sell products, lots of them. But don’t pretend to not be a product ecommerce company any longer. Embrace it, provide a better UI experience for product sales, only work with quality vendors and provide customer service necessary to the task of offering products. Welcome, you are now an eCommerce site…deal with it.

1 Comment
  1. Great post with a lot of lessons for vendors to be aware of too. Cheers