What Amazon Wants

May 11th, 2012

By Doug Stephens

Internet retail behemoth Amazon has turned a dangerous eye toward the luxury apparel market.  Long regarded as more of a clearinghouse for commodity items, Bezos and company have announced their intent to conquer (or at least take a sizeable chunk out of) high-end fashion.  Despite throwing heaps of money into the initiative, some analysts question the fit for Amazon in the luxury category.

However, Amazon is a little like a Great White shark.  It doesn’t really matter whether they’re hungry or not, when they come close, the smaller fish get worried… and with good reason.  Amazon has developed a knack for disrupting category after category, seemingly without breaking a sweat.  So, whether Amazon can actually become a respected purveyor of brands like Michael Kors, Jack Spade or Tracy Reese is really beside the point.  The mere fact that they want into this market is reason enough for concern and it’s chains like Bloomingdales and Macy’s that stand to take the worst beating.

The question for everyone else is what to do.  How should competitors react when Amazon threatens?

Unfortunately the natural tendency of most is to compete. Basically to do what the other guy does but just a little better.  To that end, I imagine we’ll see some predictable reactions – faster shipping, free returns, sharper pricing, wider selections etc., all aimed at becoming a little more like Amazon.  This is a colossal mistake.

Competition is precisely the deep, dark water that Amazon looks to drag companies into.  They know others can’t compete on their terms, so they let them flail and tread water until they can quietly drag them under.

The key, I think, lies in understanding why Amazon is attacking you or your category in the first place.   In most cases it’s because they see the incumbents in a particular market as being mediocre or lazy.  They’re radar for detecting an underserved market is unparalleled.

Best Buy is a good example.  In a pre-internet world, Best Buy was remarkable.  Few people had ever seen so many electronics products under one roof.  However, as it became clear that e-commerce could spell trouble for them, they did little to react.  Their stores and online properties remained static and their service levels mediocre at best.   The death knell sounded when their own customers began buying things from Amazon while standing in a Best Buy store.  And now at this late stage, there’s little Best Buy can do but try to become a little more like Amazon – exactly what Amazon wants.

Stop Competing, Start Differentiating

Former heavyweight champ, Mike Tyson is credited with saying   “Everybody has a plan until they get punched in the face.” The luxury retail apparel market may have just gotten punched in the face.  The worst thing they can do is go toe to toe.

For luxury apparel retailers, survival lies not in competition with Amazon but rather in diametric opposition to Amazon.  Changing the rules of the game. Setting an entirely new standard for the luxury apparel experience and in doing so, shifting consumer expectations.  Moving into market space that’s simply too deep and narrow for Amazon to squeeze their war machine into.  Creating new terms of reference for consumers and avoiding any direct comparison to Amazon. The more competitive distance they can place between themselves and Amazon, the safer they’ll be – at least until Amazon moves again.  And they will most certainly move again.

 

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Is the Company’s DNA Killing Your Brand?

April 28th, 2012

By Doug Stephens

In 1965 American sociologist Arthur L. Stinchcombe introduced theory around what came to be called organizational imprinting – that organizations tend to be products of the age in which they were founded.  Their structure, values and even core business models can be so deeply imprinted, revolting against their genetic pre-dispositions can be difficult and in some cases impossible.

Consequently, as the world changes exponentially around them, these organizations continue to view everything through the lens of an earlier era.  They lose touch with the economic, demographic and technological realities affecting their industries.  They hold fast to their founding values, beliefs and methods, even if it’s abundantly obvious that they’re outmoded.

Brands like Borders, Blockbuster and Sears often figure highly in discussions about failure to change but another brand might just be the poster-child for just how much America has changed over the last 60 years and what happens to brands that fail to properly recognize it.

Avon, a pioneer in the direct-sales market, is in trouble and has been for some time.  The brand once synonymous with American entrepreneurial values and middle-class aspirations has seen its North American sales decimated and profits per sales representative plummet by 75%.

A recent Wall Street Journal piece highlighted a few of the challenges that incoming CEO Sherilyn S. McCoy faces.  Competitively the company is precipitously giving up share to everyone from LVMH, Moet Hennessy and Sephora to Drugstore.com and Walgreens.  Add to that allegations of illicit behavior on the part of senior employees and it’s just a really bad scene.

Yet, it’s not as though these troubles are sudden.  Consider just how many mega-transitions Avon failed to capitalize on.

When women began entering the workforce in numbers in the early 1980’s, their time and inclination to host in-home parties lessened and Avon failed to adequately react.  Being one of the very earliest pioneers in helping women attain a degree of financial independence, Avon should not only have seen this shift coming but also been in a position to own it.

When the Internet threatened to forever redefine convenience, rendering door-to-door and in-home sales inconvenient by comparison, Avon didn’t adequately react.  Also a big miss for the brand that, in its day,  took convenience to a new level with in-home sales.

When the mid-tier of the consumer market began to erode in the 1980’s, steadily giving way to gains by both luxury brands and deep discounters, Avon didn’t adequately react.  Even as it became increasingly clear that Avon was being attacked from both the low and high ends of the market, they clung to familiarity of a middle-of-the-road position.

And when Facebook and other social media sites offered brands like Avon a golden opportunity, Avon didn’t react.   Particularly ironic for a company that to this day hails itself as the “original social network.”

At each of these key junctions Avon had an opportunity, not only to redefine their business but also dictate the new terms of reference for the entire direct sales industry.   They had a chance to lead but their DNA got in the way.

It usually comes down to courage

French author and winner of the 1947 Nobel Prize in literature, Andre Gide once said, “Man cannot discover new oceans unless he has the courage to lose sight of the shore.”  Leaving the certainty of the known for the potential of the unknown has never been more important in business than it is today.  There simply isn’t time to cling to ideals and defend paradigms.

Businesses today must be constantly looking beyond the comfort of the current market, customer and business model to see what others can’t.  It’s no longer optional.  Survival depends on it.

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“Tweets for Treats” Must Die

April 5th, 2012

By Doug Stephens

It was only a matter of time before marketers developed a work-around to avoid the  heavy lifting of great social media. Companies like Amex and now retailers such as Express are now incentivizing consumers to tweet about their brands or specific offers by providing points or rewards each time they do.

This isn’t “social media”  – it’s advertising

What these companies are missing (or perhaps simply ignoring) is that the magic of genuine word-of-mouth is that it’s unsolicited. It’s not advertising, it’s earned media in the truest sense. Paying customers to talk about you online isn’t really any different than paying a newspaper or TV station to talk about you – in fact it could be considered more annoying, given the inherent lack of transparency involved. It’s not genuine.  It’s not real.

The truth is that rewarding tweets really only transfers paid media dollars from one channel to another.  It’s not an alternative to advertising; it’s just a new way of paying for it.

Is this social cyanide?

Furthermore, the success of programs like these depends completely on capitalizing on the size of customers’ social networks.  Without the network multiplier, there’s no program.  So, one has to wonder what happens if participation in the program actually shrinks the customer’s network?  In other words, what happens when people begin to un-follow blatant rewards-tweeters? I, for one, wouldn’t hesitate to un-follow any connection on Twitter who was tweeting purely for points or rewards, and I doubt I’d be alone in that sentiment.  So, if the very activity that’s intended to fuel the program ends up shrinking its reach and effectiveness what’s the point?

It’s a C+ World

I can’t help but view programs like this as little more than a means by which average brands (that really don’t deserve our attention) can squeak by.  They’re no different than the kid in school who pays someone to write their essay for them – they may pass, but they’re no smarter or better for it.  They’re still below average in the end.

Instead of creating something truly worthy of attention, brands that incentivize social mentions are choosing to fake it, to transfer the effort to their customers and to avoid the hard work of differentiating in a meaningful way.  They’d rather create average products and pay people to talk about them than deliver something truly remarkable.

The truth however, is that the days of effectively buying consumer attention are rapidly coming to an end.  It’s simply no longer tenable in a world where we ingest 34 gigabytes (100,000 words) of data per day. The only messages that are capable of breaking through the clutter are those fueled by genuine public excitement, delight and word of mouth.  That’s a really hard thing to deal with for most marketers because it’s a transition that demands enormous creativity, craft and quality.   Unfortunately for these brands, trying to pass off incentivized tweets as earned media won’t make this transition any easier or their brands any better.

 

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A Crisis of Confidence

March 30th, 2012

Why Consumer Confidence deserves much less attention

By Doug Stephens

To say things have changed since 1967 is an understatement.  Much of the technology we take for granted today was merely science fiction then.  National economies, once bounded and distinct from one another are now inextricably connected and mutually reliant causing economic reverberations to travel at light speed from one continent to another. Companies performed with the long-term in mind and employment within them could be life-long.  The world was a very different place.

All this begs the question, why are we still relying on the anachronistic Consumer Confidence Index, developed 45 years ago, as our primary gauge of consumer sentiment and predictor of consumptive behavior?

What is the CCI?

The Consumer Confidence Index was first implemented in 1967 by the Conference Board, to measure the consumer’s outlook and comfort with  spending their money.  Today, it’s benchmarked to the year 1985, which was chosen as the baseline year for its relative stability compared to other years – it was neither a peak nor a trough economically.  Each month a sample group of 5000 households are asked 5 very general questions to see how they feel about their economic situation.  The current analysis – how they feel today –  makes up 40% of the index. How they feel about their future prospects make up the remaining 60%.  So, in a sense, the CCI designed to be both a lagging and a leading indicator of the health of the consumer economy and the extent to which we, as consumers, are likely to spend.

Not surprisingly, a tremendous amount of financial activity, stock trading volume and business investment strategy hinges on the monthly results of the index, which lately have resembled the ups and downs of an echocardiogram, as consumers struggle to truly understand their economic situation and future.

 A Stone Tool in A Bronze Age

When the index was conceived in the late 1960’s it would have been infinitely easier for the average consumer to gauge their financial stability and job security. Foreign influences on our economy were fewer.  Disruptive technology moved more slowly.  And for much of the last 50 years, business cycles were longer and less turbulent – due in large part to the flattening influence of government intervention and monetary policy.

Today, most experts agree that business cycles are shortening dramatically.   The ability of government to control swings with the kind of artificial stimulus that was prevalent from the 1980’s to the mid 2000’s has now all but dried up.   We are now at the mercy of the wind, so to speak. The result is likely more turbulent and decidedly unpredictable economic cycles.  Corporate outlooks are shorter-term.   The notion of employer/employee loyalty has become nostalgic.  And technology can sideswipe businesses and even entire industries without them ever seeing it coming.

So, if the world’s great economists can’t agree on what’s happening – much less what’s going to happen, is it logical that the average consumer can do any better?  And with a full 60% of the index’s value based on consumer prognostication, it seems virtually engineered for inaccuracy.

With nothing to replace it we can expect to live with the Consumer Confidence Index for the foreseeable future but given its inherently archaic premise, perhaps we should be giving it a lot less air time.

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Is Klout the New Kredit Score?

March 6th, 2012

By Doug Stephens

Celebrities have long been known to receive special treatment.  The best seats in the house, front of the line access to the hippest clubs and healthy discounts on the things they buy.

Now, social networks have given rise to a new breed of celebrity – the Influencer.  While they may not be as well known as George Clooney or Katy Perry, they may indeed have far

image courtesy of wheelerblogs.com

more direct influence on the buying behavior of those within their respective social or professional networks.  The way they roll and what they like means a lot to their followers.

Influence is the new power

There was a time when if you wanted to rub shoulders with real influencers, you’d have to work your way into elite circles in places like Martha’s Vineyard, Palm Beach or Greenwich Connecticut.  It used to be that money, first and foremost begat influence.  Today the opposite can be true.  Influence, in many cases generates money.   Just about anyone who builds an authoritative enough online voice can wield significant power.

For businesses, identifying and connecting with influencers has never been easier than it is today.  Rating system Klout for example, ranks users by the size and engagement level of their social/professional network.  Based on this, it calculates what it calls a KLOUT score – a measure of the users overall influence across specific topics – which could include anything from business to religion and everything in between. While Klout’s accuracy is a topic of hot debate, most can agree that it’s at least directionally indicative of one’s online swagger. Other networks like Twitter, make it simple to see who commands the greatest following within a certain topic area. Regardless of what you sell, zeroing in on the taste-makers in the crowd is easier than ever before.

Businesses are awakening to influence

It’s not unusual for retailers to reward their biggest spenders with special perks and privileges.  Now they’re waking up to the potential that influencers possess to get others to buy as well. For example, online retailer Gilt Groupe recently announced an offer giving Klout users special discounts proportionate to their Klout score.  Similarly, California fashion retailer Volga Verdi offered customers specific discounts based on the size of their social network – more friends, bigger discount.  All in an effort, of course, to get these same influencers to evangelize their brand to flocks of fans, followers and friends.

Defining Influence

It’s far too early in the game to determine precisely how effective these kinds of promotions are but there are also some inherent risks.  First among these may be quite simply recognizing and rewarding the wrong people.  The size of someone’s network is not always the most accurate gauge of influence.  Most experts agree that the absolute number of followers is relatively less important than the percentage of those followers that actually do what the influencer recommends or endorses.

Then there’s the issue of offline influence.  Just because someone isn’t a power-tweeter Facebook user, doesn’t render them non-influential.

So, it’s important that marketers approach influence marketing with eyes wide open to the potential risks of giving away profit margin to those customers who don’t really deserve it and overlooking those customers who do.  It’s hardly an exact science.

The Corruption of Connection

Finally, there remains a social component to all this that we shouldn’t lose sight of.  If this marketing approach becomes pervasive (and it probably will, at least for a while), it runs the risk of undermining much of the inherent spirit of social networking – that it’s social, not commercial.  Already in social networks, some users are suspiciously indiscriminant in their efforts to connect and gather followers.  Their motivation is questionable.  Imagine having good reason to believe that these requests for connection are merely a means to a higher discount or more free stuff.

I suppose if there’s a moral question here, it’s this…are we conceivably turning “friends” into little more than bargaining chips for a better deal?  Human coupons waiting for redemption.

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F-Commerce Didn’t Fail. Advertising Did.

February 23rd, 2012

By Doug Stephens

Bloomberg recently suggested that F-Commerce (as it’s come to be known) has been failure.   They pointed to retailers like GAP and JCPenney beating a path out of Facebook, citing their disappointing results.One Forrester researcher was quoted as saying that selling on Facebook is “like trying to sell stuff to people while they’re hanging out with friends at a bar.” , implying that Facebook was simply too social to be worth a retailer’s time.

So, while only a year ago most were hailing Facebook as the new frontier of retail, it seems to quickly be becoming a ghost town, as brands and retailers shutter their f-stores.

Advertising Still Sucks

But consider this; how many commercials on TV last night were memorable?  How many ads in the magazine you read last week stood out?  How many retail experiences in the last month left you delighted and rushing to tell friends about it?  Can you remember any? My bet would be not many and perhaps none.

So should we really be surprised then that consumers have been largely unimpressed with the efforts of retailers on Facebook?  After all, most have done little more than transplant versions of their online advertising collateral to Facebook. Why should we as consumers be excited?  If the truth be known, neither GAP nor JC Penney has done much to excite customers for at least decade or two, so can we really blame Facebook for the failure of their F-Stores?

Beyond the Like Button

If we’re honest about it, most retailers simply are not being creative enough.  Almost none have woven their products skillfully into the social mechanics of Facebook.  And I can’t think of one that makes it fun or cool to shop with friends in their Facebook stores.

The vast majority of brands haven’t figured Facebook out yet.  And who can really blame them.  Most are coming off a hundred years or so of what author Seth Godin refers to as The TV Industrial Complex – the marketing construct in which the goal was to advertise on TV so you could sell enough product to buy more TV advertising and all in an effort to interrupt consumers as many times as possible. There was no need for brands to be interesting or creative.   As long as they could keep buying lots of advertising, they succeeded.

Facebook doesn’t work that way.  It isn’t TV and in many ways it isn’t even the web.  It’s different, it’s organic and living.  And perhaps what’s got marketers most freaked out is that Facebook tells you when you’re boring, when you need to work harder.  It’s almost immediate in passing its judgement on your creativity or lack thereof.  Scary stuff for an industry accustomed to monologuing with consumers.

Shopping IS Social

I still maintain that one day, Facebook (or its successor) will be recognized as one of history’s great shopping venues but marketers are going to have to be far more ingenious, inclusive and socially sensitive in their approach.  That doesn’t mean putting like buttons on ads and calling it a day. It’s means creating amazing digital architecture that lets people go shopping with their friends.  It’s about staging exciting Facebook events people can share with their friends and family.  It’s about crafting unique, memorable and socially sticky content that people can’t get anywhere else.  It means NOT advertising.

As for the belief that social hangouts can’t be places of commerce, it’s simply unfounded.  In fact, we have only to look as far as the local market, mall or Main Street to understand just how social shopping really is.   Shopping is and always has been as much a product of sociology as it has been a driver of commerce. The two are joined at the hip.

All of this is more than just a mere tweak for marketers.  It’s a massive and historic shift.  In essence it’s a transition out of the industrial advertising era into a new and enlightened age of marketing.   And it may be a transition that not all brands are capable of making and frankly, perhaps that’s a good thing.

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Posted in Advertising, Behavioral Marketing, Branding, social media, Strategy, Technology, Trends | 1 Comment »

The Future is Temporary: Retailing in A Pop-Up World

February 21st, 2012

By Doug Stephens

Reebok pop-up store New York City

The concept of pop-up retail has been around for more than a decade.  Vacant, a company out of Los Angeles, California is credited with pioneering the concept of pop-up shops in North America, after seeing similar concepts in Tokyo.  They observed that Japanese consumers would sometimes line up for hours to buy limited edition goods.  Once stock was sold out, the store would simply close until new stock arrived.  This led Vacant to innovate the current model for pop-up, whereby stores would open for a defined period and then simply close, only to pop up later in a different location.

Until 2007 however, pop-up shops, while intriguing, were regarded largely as a novelty.  The retail industry remained dominated by the foundational precept that stores were more permanent things.   The goal of most retailers remained long-term, favorable leases in locations with trusted consumer traffic levels. This was how retail was done and how it was won.

Popping Up Out of the Ashes

The economic collapse of 2008 brought new opportunities for pop-up retail.  Landlords who were reeling from fallout in the commercial real estate market entertained previously unthinkable, short-term agreements for their space, paving the way for a host of temporary retail installations.  From Los Angeles to the mean streets of New York, the economic meltdown spurred a brilliant series of unique and daring pop-up concepts.

Above all else, these concepts seemed to breathe new life into a retail industry that had become fat and lazy, in the days leading up to the financial crisis.  Retail had too long depended on excess consumer spending to buoy demand. Only when the bottom fell out of the market was it apparent just how unremarkable most retail had become.

In a sea of sameness, these unique and fleeting pop-ups caught the attention of consumers and made retail interesting again.

From Novelty to Strategy

Today, pop-up has become a legitimate channel strategy.  Everyone from Walmart to Hermes has turned to these temporary formats to reach consumers where their full-line stores couldn’t.

Entire cities have embraced the concept of pop-up retail as a means of revitalizing urban neighborhoods.  One example, Oakland California’s Pop Up Hood concept, offered 6 months of rent-free space to independent merchants to test out their retail concepts in designated parts of Oakland.

Even entertainment moguls Jay-Z and Kanye West opened a pop-up shop last year in New York City to commemorate the release of Watch the Throne.  The store was open for one weekend only.

Technology is also fueling more creative approaches to pop up.  Augmented reality applications are transforming inanimate spaces into engaging consumer buying portals – trips through the looking glass.  Net-A-Porter’s recent launch of its Karl Lagerfeld line, whereby the outside of the store became a living interaction point for mobile device wielding consumers, is one such recent example.

Net-A-Porter uses augmented reality to wow crowds at their Karl pop-up stores

Commercial Real Estate Redefined

What these and other concepts point to is an historic move away from retail being solely about established patterns of consumer traffic and purchase intent based on familiarity.  The new consumer is seeking surprise and excitement from retail and is in many ways returning to its pre-industrial revolution roots and the concept of the travelling market.

For the commercial real estate industry, the writing may be on the temporary wall.  The success of pop-up retail signifies the need for less permanent real estate overall.  It’s logical to expect more retail chains to move to a mix of flagship (got to be there) locations and opportunistic, temporary installations to create excitement and capture sales. The commercial real estate professional of the future may be relied upon as much for their keen sense of guerilla marketing instinct as they are for their knowledge of the market overall.

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Let’s Get Visual: Marketing in a post-text world

February 12th, 2012

By Doug Stephens

As you read this post, you are digesting a form of content that represents a quickly diminishing proportion of the total web content you consume each day.  The written web is steadily becoming a thing of the past.

By 2013 Cisco estimates that 90% of all consumer IP traffic will be video.  If you think this sounds implausible, consider that even today video represents well over 50% of all consumer traffic.  Social bookmarking site Pinterest recently hit 10 million unique monthly users faster than any other site in history.  Infographics, a marriage of visual design and data, have become a common means of helping us digest and contextualize complex data sets.  Even traditional newspapers are increasingly turning to the infographic as a means of getting the story across to readers, giving welcomed relief from the graphs, charts and tables traditionally used by media to convey data.  Even resumes are moving from text to graphics, with sites like visualizeme.com and others turning the traditional, dull resume into a thing of the past.

This move to a visual web makes sense when you consider the avalanche of information that the typical consumer is coping with today.  A 2009 University of California San Diego study estimated that the average consumer was already being exposed to about 34 gigabytes of information or 100,000 words per day.  With dramatic increases to both processing power and the ubiquity of mobile technology in the 3 years since the study, one can only assume these figures would be even more mind-boggling now.  Thus, it follows that our minds are seeking visual breaks – a respite from the enormous glut of data coming at us.  Images and video give us that.

What it means for brands, manufacturers and retailers who haven’t already realized it, is that the days of telling customers about your product with words are coming to an end.  Traditional catalogs, brochures and selling aids won’t cut it in a world where consumers are seeking visual and audible alternatives.   Your word-based pitches will be shunned.

The fundamental reality is that as our capacity to process information steadily increases, our predilection for words will steadily diminish. Our brains are subconsciously seeking messages that provide our eyes these visual resting points.  In other words, the brand with the best pictures, graphics or video will likely win – regardless of what they sell.

This means reimagining your business, your brand and your product through all visual tools at your disposal. It means exploring your brand through the lenses of Youtube, Flickr, Pinterest, Tumblr and other visually based social tools.  It means revisiting websites with an eye to crystalizing thoughts and ideas into images and sounds, instead of words.  It means showing consumers instead of telling them.

Welcome to the visual web.

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Why Amazon Needs Stores

February 7th, 2012

By Doug Stephens

It was reported this week that behemoth online retailer Amazon is planning to open a brick and mortar store location in its home market of Seattle.  The intent, it’s speculated, is to create a destination for the Kindle Fire and a selection of exclusive Amazon content.

Given Amazon’s size and dominance in digital channels, one has to wonder why it would bother with brick and mortar stores at all.  Surely it’s not an effort to make Amazon a household name – that’s been accomplished.  And would the unit Kindle sales of a few stores really make a strategic difference for the company?  Probably not.  In fact, one could argue that the magic of Amazon’s business model is that it moves enormous amounts of product without the burden of operating physical locations. So why stores?  Why now and to what point?

The answer may lie in one very simple truth.  When I try to picture the Kindle Fire experience, nothing comes to mind.  There is no tangible, sensory or emotional connection to the product at all. Whereas with Apple, I can clearly conjure images of crowded stores with people aged 6-60 lining up to try the new iPhone or iPad, my Kindle Fire recall is a vacuum.  And I doubt that I’m alone.

In truth, what Amazon needs to sell over and above the Kindle Fire, is the “Kindle Fire Experience” –and that’s where stores play a strategic role.  It used to be that if you wanted to demonstrate the experience of your product, whether it was snow tires or breakfast cereal, you just bought lots of television advertising.  In fact, in 1965, a mere 3 television ads in primetime bought you 80% of the viewing public!  Today, that number is closer to 117 and that only guarantees you the potential to reach your audience – there’s no guarantee your ads will actually be consumed.  I can’t think of many brands that can afford 117 primetime television ads.

The Store is the Ad

This all signals a much deeper and more historic shift in the strategic purpose of physical stores, which I’ve alluded to before; that being that physical stores will increasingly serve as a distribution channel for brand experiences as opposed to simply products.  On an escalating scale, stores, not televisions, are where people will have their first encounter with new brands and products. The store will serve as the front end of the experience, the buzz agent and the catalyst for consumer evangelism and purchases across multiple online and offline touch points.  So, the store is no longer the end of the marketing cycle but rather the beginning – the living, breathing advertisement for the brand and product.

I believe that Amazon has recognized this fundamental shift.  The question becomes whether the company that did so much to disrupt our concept of the e-commerce experience, can apply the same craft and cunning to the in-store experience.

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Is The Deal Finally Done?

January 23rd, 2012

One short year ago, the hype around daily deals was electric.  In the analyst community, you could barely get through a day without hearing something about players like Groupon, which happened to be growing at a meteoric pace.  In fact, by the time of its initial public offering in 2011, Groupon was stating that it had reached full year 2010 revenue of $713.4 million, while only a year earlier, the company’s revenue was $30.47 million – a year over year growth rate of 2,241%.  You read that correctly…over two thousand percent growth in one year!

Image courtesy of ViralBlog

There was also significant debate about whether these deal sites were salvation or suicide for small business, who for years had battled large retailers with deeper pockets.  Many felt daily deals could be the playing field leveller, that allowed the little guy to achieve marketing reach on a budget.

However, while consumers appeared to be prepared to jump on deals, many wondered what the actual redemption rates on deals were at retail.  More importantly, statistics began to show that deals as a long-term customer acquisition tool were weak, with many consumers admitting to cherry picking deals and never returning to the store again.  There were even a few horror stories of merchants being driven out of business by deals that went viral and exceeded all capacity to fulfill demand.

My take at the time was regarded as somewhat contrarian.   I felt that “deals” were not and never would become, a self-sustaining business but rather that, deals, discounts and promotions were and always had been mere marketing tactics. I felt that players like Groupon and Living Social, to name just a couple, had not invented a new business model but simply digitized an old tactic – the price cut –  that had existed since the beginning of time.

If there was anything impressive about deal sites, it was perhaps the massive uptake they could achieve with their offers.  When Gap ran a $50.00 gift card offer for $25.00,  they sold half a million of them.   It was like the difference between putting coupons on car windshield and dropping them from an airplane.  But the degree to which an offer like this actually paid off for the GAP is still unknown.  Groupons were notoriously difficult to measure at point of sale.   Some argue that the offer did further damage to the already waning GAP brand.

As consumers, we tend to be wowed by digitization.  Digitizing things tends to make old things look new and cool again but the shine wears off fast.  If there’s nothing fundamentally new or game-changing about the concept, we lose interest quickly and move on. And it would appear that many of us have gotten over daily deals.  Because underneath the shiny exterior, these were just coupons and does the world really need another coupon?

Last week Techcrunch reported that in the last half of 2011 alone, an unbelievable 798 daily deal sites folded.  By the end of 2011, Groupon’s share price had slipped below its IPO level, as the company was plagued with accounting scandals and reported retailer acquisition troubles. Some even began referring to Groupon as nothing more than a thinly veiled “ponzi scheme.”

What lies ahead for daily deal sites is unknown.  More may be born and almost certainly, more will die.  A few might innovate and create real value propositions.  My guess however is that eventually the surviving deal sites will simply be swallowed up into larger online entities.  Every major player including Amazon, Google and Facebook will have a daily deal arrow in its quiver but they will be reduced to being nothing more than one of many marketing tactics available – not businesses unto themselves.

UPDATE:  Following the posting of this article, I participated in a discussion with Natasha Mitchell, Host of the Australian Broadcasting Corporation’s Life Matters, on the future of daily deal sites.

Here’s the audio of that program.

 

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