GrouponPop quiz: How many online daily deal services can you name off the top of your head?

Groupon, obviously. Then its competitors: LivingSocial, Trubate, Offermatic, Gilt Groupe, Bloomspot, HomeRun, and Capital Deals, plus TravelZoo (TZOO) Deals, Facebook Deals, Bing Deals, Google (GOOG) Offers ... I'm losing count here.

Daily deal services are popping up faster than lottery winners' long-lost relatives. What was once a reasonable way to save money has become a national obsession.

Not only do we like getting a good deal, we also like watching television shows about other people pursuing bargains, too. TLC's "Extreme Couponing" follows coupon connoisseurs whose moments of triumph boil down to this sentiment: I got a lot of stuff I don't really need or want for next to nothing!

Stockpiling Has Become the New Norm

Money magazine describes America's preoccupation with coupons like this: "It began nearly three years ago as a sensible response to an economic catastrophe but has since morphed into something more complex -- a national fixation with refusing to pay retail that has turned otherwise normal families into coupon-clipping ... stockpilers who march through grocery stores with bulging binders of coupons and fill shopping carts with more free jars of mustard and cat food than they could ever use in a lifetime."

What's surprising in all this is how many of those who obsessively "coupon" (a verb now, like Google), don't need to.

One "Extreme Couponing"-obsessed family interviewed by Money -- the Liggetts, a family of three from Missouri -- make six figures. They have in their pantry 288 rolls of toilet paper, 80 jars of tomato sauce, and 40 bottles of men's body wash. They claim to coupon for kicks.

But if the public's sudden, huge enthusiasm for coupons was indeed a reaction to the recession, it follows that the vast majority of us should stop using coupons when the recession passes.

Backing Away from the Sunday Circular

There are signs that such a backlash is already brewing. People are starting to realize that saving money can cost a small fortune.

Websites that facilitate the sale of unwanted daily deals have been sprouting up almost as fast as new flash deal sites themselves. They are a way for purchasers to recoup some (if not all) of the money they spent in impulsively clicking for savings.

Groupon may or may not approve of their shadow market, but that the outlets exist at all highlights a major business-model flaw.

About a fifth of daily deal purchasers don't end up using the deals they buy. As Rice University prof Utpal Dholakia recently pointed out to BNet, "when 21.7% of deal buyers don't redeem vouchers ... the daily deal was a bust for shoppers and issuers alike."

So Much for Helping Local Businesses

The worst outcome of the coupon craze is that it may actually be hurting the local businesses people think they're supporting with their patronage.

Even when buyers redeem their vouchers, the customers brought in by daily deal sites rarely spend on other items or return for full-price purchases. It's no wonder that, according to Dholakia's research, fewer than half of the businesses who have participated in daily deals were certain that they'd do it again.

It's hard to make your money back when you're giving away cupcakes and wax jobs for $0.50 on the dollar. Gawker has pointed out that many local merchants are losing more than they can afford to the couponers. For Gawker readers, which number in the millions, the word is out, and the daily deal is no longer guilt-free.

For now, maybe, it's just hoof beats in the hipper parts of Brooklyn. But rest assured that the backlash is coming. When it does, it'll be swift, and it'll be painful for the Groupons of the world.

Motley Fool contributor Catherine Baab-Muguira has no financial interest in any of the companies mentioned in this article. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Travelzoo and Google.



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matt

You hit the nail on the head when you say Groupon actually hurts local businesses. Luckily, not all deal sites mimic Groupon's business model. My favorite deal site, www.bigtip.com lets merchants have total control over how their deals function. Bigtip's merchant tools let users modify their deals so they can actually take control of how customers save. The daily deal fad will collapse if all the merchants, sick of losing money, disengage from these sites. So treating the merchants right is the key to keeping the deal sites afloat. That way, both parties win.

August 08 2011 at 3:53 PM Report abuse rate up rate down Reply
megamelfina

Groupon is certainly very popular right now, and they many other daily deal start-ups are following closely behind.

A great site to use to find deals and sales in your area to save is http://www.dailydealpool.com. They'll send you a daily email with the best buys around, ensuring you can save every day!

August 03 2011 at 5:53 PM Report abuse rate up rate down Reply
ehall36383

Can you say DOTCOM REPEAT !!!!!!!

August 02 2011 at 11:48 PM Report abuse rate up rate down Reply
Eva

Great article -- lots of interesting points. I had a few thoughts to add, though.

First, not ALL sites that sell deals are "daily deal" sites. Some, like Trubates, use the Amazon model -- their goal is to get as many deals online as possible, so that people can SEARCH for the deal they want, rather than impulsively buying whatever happens to be the deal of the day. For more, check out this blog post: http://blog.trubates.com/

Second, I agree that daily deal sites can be VERY bad for merchants, for the following reasons:
1. Daily deal giants like Groupon take a 50% commission. This means that merchants aren't making "$0.50 on the dollar." They're making $0.25 or less on the dollar.
2. Most daily deal sites don't let merchants control how many deals are sold. This could mean that you are selling 6 months of inventory for 50% off, which could literally put you out of business.

However, deal sites can also be REALLY GOOD for businesses. Here's why:
1. You get online marketing without any upfront costs, such as paying for a display ad, listing, or CPC.
2. If the site that lets you control how many deals are sold over time (i.e., a MARKETPLACE for deals), you can leverage unused inventory to maximize profits and draw in new customers. If you restaurant has 20 empty tables a week, you can sell 20 deals online to fill those tables, helping you meet fixed costs (heating, rent, payroll) while providing the opportunity for you to convert the new customers into repeat ones.

It's up to merchants to be smart about how and with whom they're doing their marketing.

August 02 2011 at 4:47 PM Report abuse rate up rate down Reply
warrenbent

The author of this article obviously isn't educated about how the industry works if she beleives it is a major business model flaw to have a portion of buyers not redeem their coupons.

August 02 2011 at 3:06 PM Report abuse rate up rate down Reply
kamfdi

I did the coupon route with my scuba diving business, discover scuba diving 50% off and hooked up almost 1k. Getting them in the door and turning them into scuba divers is working. I have friends that hooked up with food coupons and that did not work. I am a happy diver.

August 02 2011 at 2:54 PM Report abuse rate up rate down Reply
lfossee

I could not agree more with this opinion. I feel that a groupon my increase your traffic at a loss and than
customers are on to the next Groupon, not your store.

August 02 2011 at 2:04 PM Report abuse rate up rate down Reply
cbrownhvac

Groupon is nothing but a way to steal cupons from the consumers abd line the pockets of this group!
NO TO GROUPON-

August 02 2011 at 1:55 PM Report abuse rate up rate down Reply
1 reply to cbrownhvac's comment
warrenbent

Steal coupons from consumers? Huh?

August 02 2011 at 2:57 PM Report abuse rate up rate down Reply
edtecpubs

Duh! Now, everyone is shocked that people are getting tired of the coupon nonsense? The Groupon founders turned down 6 Billion dollars from Google, in their unlimited greed. Hopefully, by the time they go public the silliness will be totally over, and they will be lucky to get away with anything, though we cannot count on this -- they might just walk away with many billions before the whole thing collapses.

August 02 2011 at 1:52 PM Report abuse rate up rate down Reply