The dark side of the Daily Deals phenomenon manifests in three main problems vendors have with Groupon:

• Groupon can overwhelm small merchants when it sells too many coupons. How can a Chicago nail salon accommodate 5,100 new coupon holders?
• Groupon depresses profit margins. Obviously deep discount coupons are marketing loss leaders for local retailers. On a corporate scale, it’s quite possible that the big Groupon deals like the nationwide $25 for $50 worth of Gap gear might significantly hit Gap’s earnings. Never mind that the loss might be a wash with lower marketing costs, in the end the consumer perception of retail prices dropped 50%.
• Retailers bemoan the rise of Groupon and the deal sites because they inculcate a culture of “don’t buy retail”. Everything can be negotiated. Brands become diluted as they become perceived as deep discounters and new customers tend to be non-loyal price shoppers.

Here are ten more Groupon problems by Kevin Eklund.

Solution

Retailers have no solution to the new “don’t buy retail” culture because the cat is out of the bag. Although certain types of business can maintain a service proposition – medical, legal, professional – that can’t be commoditized, retailers are now in face to face conflict with their most cherished mantra- ” never compete on price”.

The combination of the recession’s low consumer demand and depressed retail margins will force retailers to change the coupon game in the following ways:

• The budget for couponing will grow at the expense of other marketing and advertising channels. Coupons are performance based and their instant campaign feedback is easier to assess and more accountable than figuring out the ROI and CPM for a banner ad campaign.
• Many local retailers will stop going with massive Groupon campaigns in favor of more controlled couponing campaigns by local coupon systems. This will allow the retailer to test various campaign ideas without the risk of oversell. The key factor for the retailer is in assessing how a service performs in delivering coupons to their target local audience, and a local service may be more efficient and less costly.
• Coupon campaigns will look to scale. The big national campaigns, and even regional campaigns are far more profitable and easier to manage for Groupon. Brand retailers like the Gap will be able to negotiate these attractive deals and play Groupon, LivingSocial and other systems off each other.
• Retailers will demand lower pricing than the standard 40-50% of coupon face value that Groupon charges. From a retailer point of view, a coupon delivered to the same local customer with a couponing service that charges a 30% fee is better than one that charges 50%. Although the service may have smaller coupon distribution, they can run deals more often.
• Discounted offers must be validated with good crowdsourced reputation, or they will be perceived suspiciously as a cry for new business. Retailers will understand that maintaining coupon campaigns will require consistently good Yelp reviews because buying coupons is a site unseen decision.

UPDATE: 9/16/10: This article is intended to address some of the criticism that accompanies the Daily Deals movement that Groupon sparked. Readers of this blog would know that I support this movement. It is revolutionizing local marketing by creating a performance based metric for advertisers. I believe Groupon is the front runner in developing a real time localized transactional system that will eventually cover hotel rooms, concert tickets and airplane seats by addressing the need for selling off perishable goods and services at the last minute.

That said, based on comment on my Facebook page, I do think the Groupon / Gap deal was a huge success because it put Groupon on the map, and tipped consumer sentiment to the obvious value proposition of online coupon advertising. Yes, the Daily Deals movement does depress retail margins, but it’s inevitable. Intermediation is what the Internet does best.

Groupon‘s nationwide rollout of $25 for $50 worth of Gap merchandise got a lot of mainstream media airplay and sold 441,000 Groupons, netting $11 million. The net effect is the mainstream buzz that introduces Groupon to America. The “daily deal” is becoming institutionalized as the advertising medium most compatible with the Great Recession.

Here is what the Groupon + Gap deal will spark:

• More national deals. Think Office Depot, Best Buy, Home Depot, or Apple Stores where the sale of higher ticket items over $100 can justify a $25 for $50 deal. Groupon and other coupon players can layer on national deals on a limited basis so they don’t alienate their local business client base.
• National and regional retail chains now have a medium for brand revival. Can a loss leader Groupon strategy create enough traffic to generate supplementary sales, or even stave off seasonal financial problems from the one time coupon receipts?
• Shopping malls and local business associations can now systematically round robin “daily deals” among their stores in order to deliver foot traffic.
• The spawning of national deals that don’t require redemption at the physical retail level. Think infomercial products, Dell PCs and other electronics, and odd lot inventory.

Groupon has shown they are more than just a local restaurant play, and it’s frankly more market efficient to produce one national Gap campaign to complement the hundreds/thousands of local campaigns they do daily as their bread and butter.

One fallout about the Gap campaign is the prospect that everybody will be wearing the same Gap clothes this fall!

Techcrunch posted this video interview in which Twitter product manager Shiva Rajaraman discusses how Twitter using its @earlybird couponing channel can work with brands to offer perishable deals on the fly (something we discussed last week):

At first blush, Twitter faces three hurdles:

1. @earlybird is positioned as another Groupon/LivingSocial/BuywithMe/etc., and couponing is becoming commoditized. So far, @earlybird hasn’t differentiated itself to be anything other than a Groupon clone.
2. Brands can leverage Twitter (the platform) itself to develop perishable deal opportunities; companies or ad agencies don’t need to contract with Twitter for additional advertising leverage, they can contract more efficiently with the appropriate media channel. Twitter remains the platform but isn’t necessarily the ad distribution media. For example, real time perishable deals, like same day hotel rooms or air travel, or concert tickets, are generally localized opportunities. It makes more sense to work with hyperlocal media channels and their Twitter feeds to offer these kinds of deals to a market.
3. Following up on 2), Twitter and @earlybird are essentially national channels. @earlybird will be best positioned to offer deals for global, not local coverage. Although Rajaraman offers examples on how brands can potentially create on the fly campaigns, it’s hard to imagine any ad agency or corporation being able to sign off quickly on an instant national deals. Again, on the fly deals work best on a local level.

Couponing exploded the first half of 2010, driven in part by Groupon’s big VC investment. Coupons.com reported almost double the revenues from the first half of 2010 over previous year. PromotionalCodes.org.uk published a forecast on mobile applications and couponing (click twice on graphic to enlarge) that predicts consumer spending on mobile coupon will grow from $90 million in 2009 to $6.5 billion in 2014.

Couponing drives mobile applications by delivering tangible consumer financial benefit together with ease of use  (coupons are storable data that reside on the device, no need to have scissors handy).

Here is where mobile couponing is headed:

1. Grey market coupon marketplaces:

A secondary “Stubhub” market for Groupon coupons is developing with DealsGoRound and CoupRecoup. Since coupons are storable data, not eBay products, coupons can conceivably be delivered from seller to buyer instantly with Paypal approval. In a future scenario, consumers will be able to find a destination restaurant and search through the grey markets for a coupon while waiting for the waiter.

2. Real time coupon advertising systems:

Coupon advertising can be developed for real time distribution, similar in concept to the Japanese build to order manufacturing process. Ski resorts facing lean crowds due to poor skiing conditions will be able to instantly distribute 1/2 price ski lift tickets on the evening of a snowfall to entice impulse skiers onto empty chairlifts. Restaurants with few dinner bookings will be able to distribute coupons throughout the afternoon usable instantly.

The best real time coupon advertising engine will be built as a marketplace like eBay with functionality that allows local businesses to post their deals quickly and monitor them in real time.

3. “Minority Report” Ad Billboards

The movie Minority Report demonstrated customized audio ads targeted directly to passing pedestrians, and in the movie, personalized to the identified person. In June, a company erected 27 digital billboards in Tokyo train stations that can digitally identify the sex and age of the onlooker and serve ads based on the profile.

The 2002-released movie made one Slate reviewer cringe at advertisement bombardment and the implied lack of privacy at the time, but shift to 2010, and societal adoption of personal transparency on the social media starts to make Minority Report ads enticing, particularly if consumers can save money. It’s like finding a $20 bill on the sidewalk.

The future delivery method for pedestrians can be txt, alert via a mobile app, as well as audio or personalized billboard presentation. The startup that can aggregate geolocated coupons and develop effective non-intrusive delivery methods (I don’t want to hear 10 beeps per block) will win.

4. Consumer demand systems

The big problem with search engines is simply their inability to efficiently find the product or service one wants to buy at the best price, particularly on a local level. Try googling “tennis racquet sale in San Francisco“; you’ll see that it’s impossible to find a local sports store with a sale going on. The startup that creates a data system that can access and catalog local business inventory from major chains (or even scrape chains’ online circulars) could deliver instant consumer solutions to shopping needs. For example, a query for a “Prince tour diablo tennis racquet” would return sales data (or coupons) from participating sporting goods chains and make it easier to find the best deal.

5. Real time inventory management on time-sensitive goods

This is the enterprise variation of 2.) Real time coupon ad systems. Time-sensitive, or perishable goods include airplane seats, hotel rooms, ski chair lifts, and concert seats that optimally are filled to 100% capacity. Mobile couponing systems can provide real time inventory management that gradually discounts based on time to expiration. For example, concert tickets would be discounted after the concert starts for impulse buyers. These systems would essentially reward last minute buyers with discounted rates, instead of socking them with highest possible fees. It allows consumers to drive into a city at 10:00pm and find the best hotel room deal.

Why might this work? People now schedule in real time and time flexibility is valuable. If the business systems can cater to consumer real time needs, it will not only foster good will, but it will also efficiently increase occupancy rates. Think about this… wouldn’t you love an application that really offered great last minute deals?

Related articles:

The New DIY Advertising

How Groupon forces Mainstream Media to Adopt the Couponing Ad Model

Local Coupon Aggregation

Brand Advertising doesn’t Fulfill Real Time Consumer Needs

In the 1960′s new media was television, and Madison Avenue evolved to show companies how to leverage the media through advertising. Advertising is now mostly associated with the commercial, a one-way message from company to consumer delivered via various media channels. We’re pleased to see Jeff Jarvis pronouncing this kind of advertising is “fucked”.

The evolution of social media as game changing marketing media is finally being evidenced by companies like Ford and Audi, which are both using Facebook to launch their new Ford Explorer and their Audi A7 today.

Like the Madmen who redefined brand advertising in the 60′s, a new corps of social media marketers is finally evolving within the major ad agencies after years of taunts that they either didn’t get it or more likely, didn’t want to jeopardize their established lucrative hold on corporate advertising budgets. It’s a reactive strategic move to remain relevant.

Social media marketing has proven to be far more amenable to ad hoc DIY solutions than traditional ad campaigns that require more extensive creative and media placement expertise than a Facebook page. More companies will develop their social media campaigns in-house because it’s the interaction between the company and its customers that counts, not as much between the ad agency and the customer.

At the local level, social media – based marketing applications will be more influential because small business didn’t use ad agencies. DIY advertising solutions are being developed by Adility and Wildfire that facilitate businesses in building promotional coupon campaigns. Using these tools, small business can create their own campaigns and solicit their own “media buys” like WildRivers in Irvine is doing with independent Breaking Irvine News:

Related articles:

Brand advertising doesn’t fulfill consumers’ real time needs

Google is talking about interactive video ads at this weekend’s Allen & Co. conference. Today, Twitvid is launching its video advertising platform over Twitter (press release). What’s important to know about video is that there is already an institutional history of the video format in the form of the :30 television spot.

Like television, the social media will act as broadcast media that will distribute the “video spot” over the channels – Facebook, Twitter – that are replacing television eyeballs. Even more promising are the upcoming geolocational marketing opportunities for local merchants who will be able to upload video, coupon deals and other content like menus on mobile applications like Yelp and Foursquare. Those first mover merchants who develop compelling media content will be rewarded with Facebook “likes”, the new currency for customer attraction and search results.

We’re now reaching the stage where the instant video upload for business starts to make sense. Remember the old Seesmic video conversation platform that Loic LeMeur took down last summer 2009 because he concluded video conversation adoption by the public was limited? I agree carrying on a video conversations may still attract a limited audience, but the ease of uploading video from iPhones etc. now makes it much more easier to develop video messages on the fly. For example, it would be easy for a chef to iPhone video the day’s dinner offerings and broadcast/post it via a social media distribution system like Posterous across the restaurant’s Twitter and Facebook feeds each afternoon:

It takes time for consumers to understand and adopt new media. The concept of Twitter was alien to most, until Oprah made Twitter accessible in April, 2009. The use of adhoc video for business messaging is still alien to those who believe video production quality standards are high hurdles, but pioneering businesses will soon figure out that audiences are more interested in the real time message being delivered in “living color”.

Thanks to the growing buzz of local couponers Groupon and its cohorts, consumers are being exposed to and adopting the deep discount coupon opportunities in their neighborhoods. The next step in the evolution of local coupon advertising is aggregating all the coupons and displaying them in lists and on maps. The one stop shop approach compiles daily deals so consumers don’t need to subscribe to each individually via email, Twitter, Facebook, etc. The newest and best example of local coupon aggregation launched last week in TheDealMap, a  service by the Center’d group:

TheDealMap not only aggregates the coupons from the Groupon-type Daily Deal promoters, but allows local retailers to add their own deals. Greg Sterling provides a comprehensive description of TheDealMap’s features.

What’s next for local couponing?

Truly mobile coupon redemption

The new online coupon processing models still use a form of “clipping” that forces purchasers to print out their coupons for redemption. Services must do away with the print model so coupons can be purchased on the spot and redeemed via screen bar code. Groupon and others have been restricting use to start one day after purchase so that their clients don’t receive deep discounts that cannibalize profits. Expect less discounted on-the-spot couponing to emerge that will still get customers in the door.

Multimedia / video couponing

Replicate the infomercial. Anybody that will sit through an infomercial and purchase a product (and many do) will potentially do the same on an online video presentation. Expect local retailers to repurpose marketing campaigns that would have used TV media by applying their TV ad budget to a deep discount online video offer. Media campaigns would be easy to embed in the current couponing systems.

Value-add local advertising models trump banner ads

Local advertising now works in real time too. We’ve discussed the problem with traditional brand banner-style advertising that provide little immediate incentive to a consumer who wants either a direct monetary benefit (discounts are “instant money”) or a quick solution to locating the neighborhood stores where they can buy a product most cheaply.

Pre-internet, local newspapers made the bulk of their revenue advertising sales and classifieds. The demand for local transactional data is no different than 20 years ago. Today, there is immediate value in getting your deal across to a local buying pool in real time because transaction engines like TheDealMap are positioned to become local trading networks. It worked with Craigslist, arguably Local Transaction Engine 1.0.

All the major (and minor) mobile players – Foursquare, Gowalla, Twitter and Facebook – are targeting local couponing strategies. Expect the transaction model based on couponing to morph into new local trading systems for classifieds, delivery services and other daily life necessities.

The spawning of a commercial business model for local media

Local journalistic ventures seeking funding sources can develop affiliate relationships with the coupon aggregators and services themselves. Couponing can provide an immediate quantifiable ROI attractive to local merchants that traditional CPM-based banner advertising misses, particularly when a local venture is just starting up. In fact, any local portal network can add couponing systems to attract consumer audiences monitoring such deals, and to develop affiliate revenue sources.

1) Community Engagement will become the Driver of Local Media

Local news used to be the province of the local newspapers, radio stations and TV. It’s become clear consumers will digest local news online as newspapers shut down, and on the Internet, all media are equal – TV, radio and print websites compete for the same eyeballs. A swelter of recent big media portal deals – for example, MSN/NBCU/Hearst,  to cover local news threatens local media institutions through sheer size and scale. Curatorial portals – Huffington Post’s local editions and Outside.in (with investment from CNN among others to support content development for CNN Local editions) will aggregate the news, and local reporter infrastructure will be nurtured at citizen journalist engines like Examiner.com or AOL’s Seed.

Here’s the problem: local is local. Media portals need to figure out how to engage the community at a grass roots level so they have drivers and participants pushing the conversations and attracting their peers.  Portals believe they can scale and develop the website traffic required to support a local advertisement model. However, communities may develop their own home grown commercial systems for the same reasons why “buy local” is becoming a mantra; and the portals aren’t entitling ownership of their local media systems to the community. For that reason, a community may rather spend its local advertising dollars with an on-the-ground local publisher like Minnpost or OaklandLocal, or even a Chamber of Commerce sponsored local media resource than CNN Local.

2) Mobile + Local advertising = Penny Saver 2.0

The first local advertising and search media are starting to emerge: Postabon facilitates the broadcast of local discounts and coupon offers and Milo searches for specific products at the large chains like the neighborhood Best Buy by accessing the store’s inventory database. Expect popular geotagging applications like FourSquare and Gowalla to integrate local coupons and product search. These coupons are not perceived as advertisements. If they save you money, they are called “unexpected cash”.

These systems help solve the consumer impulse buy decision (“I’m shopping at the mall tomorrow, what stores are having sales?”). Traditional search engines haven’t been able to answer these temporal questions down to the local level (try querying Google to find a snowboard sale in your town this weekend).

Related: Examples of Twitter hyperlocal advertising models

3) Mobile + Advertising + Pubsubhubbub = Alert systems

The real time web is pushing business society into a new value paradigm that rewards those who can react instantly and systematically to opportunities. A concept not unlike Wall Street program trading, these new systems work on alerts that ping users for decisions. Mobile devices eventually won’t need “refreshes” to alert; they are always on and by extension, almost coerce its owner to be “always on”.

For consumers, marketing companies like Local Thunder will connect merchants with their community through rich media content development and RSS feeds for alerts. Google’s Pubsubhubbub essentially deploys RSS feed data in real time so alerts can be time and location targeted.

We start getting into Augmented Reality / Minority Report territory when coupon alerts popup as one walks by a store, but some company will make this real time location based alert system a reality, if not a hit, by the end of 2010.

4) Advertising as Content

Infomercials got it right; advertising as content engages customers at the story telling level. And the content may be ridiculous:

new ad from the California Milk Board

Today’s business can no longer resort to trite marketing, and say “buy from me because I’m honest… high touch… lower priced… give great service” with a straight face any more. It now comes off as, well, an advertisement.

Advertisements used to be crafted to lead into the “call to action”. In 1960′s Madison Avenue’s ideal world, consumers would make the purchase decision based on the facts presented in the ad or by the incessant aggregate impressions made in what has always been called “branding”.  In the fuzzy world of social media marketing, where is the call to action?

5) Everybody becomes a marketer, and some will become sales closers

The call to action still originates from consumer need. A call to action may simply be an attractive price, but in many circumstances, the transaction close is facilitated by a personal sales pitch or a referral. As advertising becomes content driven, the combined testimonials for a product or service become far more persuasive to support the call to purchase. Testimonials and ratings of local services (like the current standards  Yelp.com and Citysearch) will be built into every local media resource (see Postabon‘s rating system). In fact, Yelp has elevated the standard so that the 5-star review is becoming the minimum parsing criteria for real estate agents because so many have this grade.

Bad, or even 4 star reviews are now potential disqualifiers

So how can somebody profit from providing testimonials and otherwise supporting the marketing efforts of others around them? Locals will do the same things they did pre-Internet with their Chambers, Lion’s Clubs and networking groups – support each other. New social media – enabled referral systems will be built out locally through Facebook and LinkedIn groups, and through the new local ad applications.

The bigger trend will be the development of local affiliate marketing systems that compensate referrals. Think of websites that have an Amazon affiliate widget or link that compensate owners if their users go through the widget to buy Amazon stuff. Companies will provide applications to build local merchant guides for use by other local business websites to create networks of affiliated services. And local affiliate marketing systems is only a start; affiliate marketing programs extend sales forces without adding overhead, and we’ll start seeing mainstream adoption by enterprises developing strategic partnership programs.

Related: The essence of affiliate marketing

5)a) Everybody can become a traveling sales person

Anybody can become a virtual mobile storefront using the upcoming Square, a secure, simple to use iPhone application with a credit card reader that allows anybody to become a street merchant. Point-of-sale becomes redefined when anybody can potentially sell anything anywhere.

6) Virtual socializing and Webinar ubiquity

Webinars are social media too. They are already changing the landscape on how people meet for business on the cheap, and worry the airlines.

2009 British Airways face-to-face campaign

Current webinar systems like Webex are still too difficult to use. Within 2010, some company will develop a simple to launch, one-click web meeting system that can broadcast live discussions across ad hoc participant groups. Call the concept adhoc webinars. Why will this work? Webinars can become venues like happy hours where groups can meet and share. The key is ease of use, anybody should be able to participate so weekly scheduled meetings can expand as more people know about them. Imagine Robert Scoble producing a one-click webinar party every Friday afternoon to discuss ideas – he would essentially have an interactive TV program that can be produced on the fly without studios and cameras.

Virtual socializing is the natural evolution to social networking because it’s location independent. One example in the real estate world are the virtual REBarCamps that aggregate speakers and audience together in a virtual national conference.

7) The grass roots Web

Website and application development should be simple enough for normal folks who know nada about code, but still want to custom develop a clean, workable application by themselves without hiring tech talent. The ascendance of plug/play blogs and WordPress themes and plug-ins, and Ning based social network applications facilitate the quick building of applications by non-techies. Add in automated features like Facebook Connect, Twitter Lists, Posterous posting, and the latest mini-applications that provide snippets of value to the website, and website development is becoming accessible and experimental to the masses. However, I’m frankly surprised there isn’t more activity to provide simple plug/play applications to individuals and SMEs… will 2010 be the year?

Speaking of websites, the next great media company won’t have a website (h/t Steve Rubel).

Related: How to build a community media resource

8 ) The stream is more important than website

Anybody immersed in the social media already knows this. The content stream constitutes a conversation, and can be perceived as far more “real” than a calculated marketing-focused website presentation. The same new paradigm that makes an advertisement seem  promotional applies to websites. Yes, conversations can happen on websites but there are likely many more occurring on Twitter, Yelp, Facebook and other blogs that are deemed more credible because they are third party commentary.

fr. Fast Company http://bit.ly/5bRTxL

AshtonKutcher.com the website does not exist. He is a Twitter celebrity whose breakthrough social media credential was challenging @CNNBRK to a 1,000,000 follower contest. Media presence isn’t just website traffic, it’s providing value to the readership through new media channels… which leads us to the reason why anybody can now become a media resource, if not a media star:

9) Curation is the new syndication

Mass media used to rule syndication, now anybody can curate and present content across a panoply of social media platforms. Curating breaking news is key to readership – it’s the reason why people follow CNN, Marketwatch or engadget. Twitter has distinguished itself as the forefront application for breaking news, and anybody can use Twitter Lists to curate Twitter feeds by topic, geography and industry. Curation tools, like Outside.in Publisher for hyperlocal news, are being developed for local content publishers.

Curators are the new news editors, and the window is open to create new media properties. Curated local media will be a focus because there’s a media void that both national media and independent journalistic efforts are now trying to fill (see #1 above).

Related:

Hyperlocal curation of real time news

Build a dynamic community media resource on Twitter in one hour

10) A new era of open social media (the adjective “social” will soon be redundant)

Facebook and LinkedIn are closed networks simply because they require confirmation of “friend” status. Frankly, it’s just too much manual clicking to accept a lot of friends. Twitter has distinguished itself as an open network that can amass networks of millions of followers, and is the application closest to a personal broadcast media. Facebook certainly sees the power of massive networks (being the biggest one itself), and in order to compete with Twitter’s broadcast power, will unveil similar broadcast functionality. Simply put, in 2010 Facebook will create an opt-in setting that allows users to open their status updates to anybody who wants to follow them. Becoming a Facebook Fan today is similar but statuses can’t be filtered within the main feed. Once 350+ million Facebook broadcast systems are potentially unleashed, they can be curated categorically like Twitter Lists and conversations more conveniently filtered. Yes, Facebook already has Friendfeed as the model, but it needs to be simpler to use, and will likely cede to a new Facebook open network product.

LinkedIn can open itself up the same way. Since LinkedIn is a more industrial network, value would be derived from curated lists developed by users based on industry or discipline. Although LinkedIn Groups encourages industry conversations, they are generally sparse and hard to follow if one has joined many Groups.

Once networks open up, conversations become even more multi-channel than they are today. A Tweet that gets syndicated across Facebook, LinkedIn, and other networks will provoke dialogues characteristic of each network. Clients like Tweetdeck and Seesmic see this coming and have integrated multi-channel monitoring systems. In the latter part of 2010, evolved versions of Google Wave and the Google OS, and possibly Facebook, will provide the same multi-channel operability integrated into their offering.

Related: Check my 2009 predictions for social media last year.