6 ms·

As an independent restaurant owner, I can't say I didn't expect to see this one day. The model simply doesn't work, at least in our industry. The restaurant los

As an independent restaurant owner, I can't say I didn't expect to see this one day. The model simply doesn't work, at least in our industry. The restaurant loses money on every single "daily deal" that is redeemed. With LivingSocial or (insert any other daily deal site here) taking half of the deal, the restaurant is simply left with 25% of the revenue generated. This does not even cover our food costs, let alone labor. The rise of daily deal businesses have brought up a couple of fundamental issues for us: 1)Customers are often daily deal hunters - We would be willing to take the one-time loss on a daily deal, if we had a chance of converting the customers into regular diners. However, we have found that most people who purchase these deals, simply move on to the next deal after they are done. 2) Cheapens the product - Once you have lowered the price for a product, in this case food, the guest automatically ties the value of that product back to the price they paid. This is a huge problem for restaurants in particular because the guest is not willing to pay full price for the product even if they liked it. Now your product is valued at half of your current price, and to get that customer back in the door, you have to offer a significant discount again (most likely another daily deal). 3) Cannibalizes our existing customer base - One of the worst unintended consequences of using daily deals is that some of your regular guests start waiting for these deals, and only come in when they are available. This hurts in two ways: 1) regular guests are now spending less than they were the last time they came in, 2) regular guests are now waiting for a LivingSocial/Groupon deal to become available before returning to the restaurant causing them to wait longer before returning to the restaurant. I believe that a company that provides customer acquisition via deals could be extremely valuable, but they must do it properly, and most importantly it must benefit their customer (in this case the restaurant). Until a company learns how to ensure that a business is obtaining a profit from providing this massive discount, without cheapening the product, and cannibalizing existing sales, the daily deals industry will continue to fall by the wayside.

DodgyEggplant 14y ago
"taking half of the deal". This is the problem. A modest marketing website with less grid and bubble orientation could take 5%, make wonderful profit, and boost it's customers.
grey-area 14y ago
I think the key here is that these deal sites take most of the money - that's not sustainable or profitable for the sites' customers (restaurants, shops etc). They're being greedy and will pay for it with the hostility of businesses and eventually death as the deals dry up. If they took less money, and were less agressive in driving prices down, businesses could price deals correctly so that they're not making a loss on each new sale and the deals benefit everyone (site, businesses, customers).
agilord 14y ago
Do you see any discount feasible for giving out? It seems to me that you just lose with discounts, no matter what percentage you share with the middle man. Edit: later on someone pointed out the usefulness of discounts for repeated transactions. The question is for daily-deal discounts.
prostoalex 14y ago
What marketing venue currently works for you and your competitors as far as new customer acquisition?
- karoramj23 14y ago
  This is a tough question. To be completely honest, none of them are amazing. Opentable does a good job of telling us which guests are first-time diners, but I still have no way of knowing if they would have come in whether OT existed or not. The biggest problem that a lot of restaurants face is that we simply don't know which marketing tactics are working. The only thing we see is if total revenue goes up or down. This causes us to just throw everything at the wall and guess what sticks based on revenue changes. To some extent coupons work because we can simply track how many are redeemed, but like I mentioned in my original post, this cheapens the product often and causes the guest to perceive that the food is worth less than the normal price. With that said, there is no homerun (at least that I know of) customer acquisition method as of right now.
schiang 14y ago
I really hate using LivingSocial/Groupon because it seems like the business owners always HATED taking these deals. I always feel like I'm being treated differently because I'm not paying the actual price. One time when I used one of these deals, I even heard the employee say to another employee "... another #$#@$#@ groupon deal....". If they didn't like people using the deals, why bother signing up for it? I can't wait for these daily deal business to go away because I don't think it benefits anyone.
- MichaelApproved 14y ago
  "I can't wait for these daily deal business to go away because I don't think it benefits anyone." If you don't like these deals, then don't use them but don't say that they don't benefit anyone. Customers benefit from these deals all the time. 50% off a meal is a great offer! I think the biggest problem with these deals (for the wait staff at a restaurant) is that people think they should tip based off the discounted meal, instead of the full price. It's a deal on the meal, not a deal on the tip.
  - jarek 14y ago
    > It's a deal on the meal, not a deal on the tip. The tip is obviously dependent on the price of the meal: most people will tip more for a more expensive meal, usually following a ratio. (20% or what have you.) People ordering the more expensive meal on the menu by and large tip more than those ordering the least expensive meal. Why should this change for the groupon meal?
    - MichaelApproved 14y ago
      Because when you get the bill, it's reduced from the retail price. People tend to tip on the price in the final bill. That final bill is discounted and they base their tip calculations on the discounted price, not the retail price. Even if they mean to tip %20, that %20 is based off a reduced number so the waiter is not getting tipped on the full meal price. When I tip on a discounted meal, I calculate based on the retail price. My original comment suggested that many people might be tipping on the discounted price and that could be why waiters don't like daily deal customers.
physcab 14y ago
The bigger problem is that you don't have any way to measure the success of a daily deal. Yes, of course you are going to lose money when doing the promotion...that is your "cost". If I want people to see my website and I pay an ad-network for clicks, I will get a bunch of costly low-quality users who did not discover my site organically. But the difference is that I can track people who come to my website and see how much they spent not only on Day 1, but on Day 365. And there exists some customer lifetime value that should in aggregate be more than your acquisition costs. Unfortunately you don't have that data and the best you can do is guess, which doesn't put much faith in the daily deal sites.
shredfvz 14y ago
This is very thoughtful of you, but the key phrase here is "at least in our industry". Truthfully I believe running a groupon offer should be done by very few businesses and only then after intensive numbers crunching. Yes, the daily deals space was a bubble - a BIG bubble - but only because substantially more businesses took advantage of it when they shouldn't have. Importantly, they probably did so because they knew jack about their bottom line and even less about marketing and sales. That doesn't mean you can fault Groupon or LivingSocial for trying to make money off of you hand over fist. When mom and pop businesses launch a Web marketing effort, they often have little appreciation for, let alone a rudimentary understanding of the Internet, and just in general have NO IDEA what they're dealing with. And yet they'll happily launch their business into a jungle full of rabies-infected cannibals, without so much as a guide. Why? Because the brochure said it was all sunshine and rainbows. If you don't run the numbers beforehand, don't do a group buy offer. And please, don't blame Groupon for your own actions if running a daily deal wasn't the right choice for your business. It's risky indeed to run a daily deal, especially when you're selling a commoditized product in a big market with dozens of entrants all vying for limited regional traffic. Your average customer lifetime value probably won't be high enough to justify a 70+% hit to front end revenue, assuming repeat business is rare and loyalty is low. What you're doing with a daily deal is similar to running a free trial offer for a consumer good that converts to a $10/mo paying customer for 3.5 months, 2% of the time. In this scenario, giving up any amount over $2.00 on the front end per customer is the equivalent to lighting your money on fire. For context, the most successful marketers online wouldn't attempt anything approaching that without a fully built back end sales funnel, probably with a call center and thoroughly tested followup method. And yet the owner of Daisy's Ice Cream Scoops thinks she can somehow make it work with her homemade strawberry sherbet. Yet, many anti-groupon commentators would have you believe daily deals are objectively worthless to any and all other businesses. This is not particularly directed at the OP, but for the love of all that is holy, Do Your Due Diligence. The daily deal promotion is merely another promotional tool at your disposal in a free market, and if you shoot yourself in the foot with it, you have no one to blame but yourself. LivingSocial AFAIK had deep roots in CPA and online advertising. You see people criticising CPA as seedy all the time, but the fact is the online advertising giants know what makes people buy, and they do it over and over, and over again. They live and breathe direct marketing like it's a requirement for survival in the industry, because it is. That expertise does not, however, mean you stick your neck out for your customers, or even pretend to care about your business partners. Too often in the online advertising industry are immediate profits sought above all else, with reputation and honesty being tossed aside sometimes. I'm not privy to any of LivingSocial's financials or business practices, but it really wouldn't be that surprising if they had trucked over everyone and made off like bandits. Hopefully they're smart enough to run a sustainable business.

DodgyEggplant 14y ago

"taking half of the deal". This is the problem. A modest marketing website with less grid and bubble orientation could take 5%, make wonderful profit, and boost it's customers.

grey-area 14y ago

I think the key here is that these deal sites take most of the money - that's not sustainable or profitable for the sites' customers (restaurants, shops etc). They're being greedy and will pay for it with the hostility of businesses and eventually death as the deals dry up. If they took less money, and were less agressive in driving prices down, businesses could price deals correctly so that they're not making a loss on each new sale and the deals benefit everyone (site, businesses, customers).

agilord 14y ago

Do you see any discount feasible for giving out? It seems to me that you just lose with discounts, no matter what percentage you share with the middle man. Edit: later on someone pointed out the usefulness of discounts for repeated transactions. The question is for daily-deal discounts.

prostoalex 14y ago

What marketing venue currently works for you and your competitors as far as new customer acquisition?

karoramj23 14y ago
This is a tough question. To be completely honest, none of them are amazing. Opentable does a good job of telling us which guests are first-time diners, but I still have no way of knowing if they would have come in whether OT existed or not. The biggest problem that a lot of restaurants face is that we simply don't know which marketing tactics are working. The only thing we see is if total revenue goes up or down. This causes us to just throw everything at the wall and guess what sticks based on revenue changes. To some extent coupons work because we can simply track how many are redeemed, but like I mentioned in my original post, this cheapens the product often and causes the guest to perceive that the food is worth less than the normal price. With that said, there is no homerun (at least that I know of) customer acquisition method as of right now.

schiang 14y ago

I really hate using LivingSocial/Groupon because it seems like the business owners always HATED taking these deals. I always feel like I'm being treated differently because I'm not paying the actual price. One time when I used one of these deals, I even heard the employee say to another employee "... another #$#@$#@ groupon deal....". If they didn't like people using the deals, why bother signing up for it? I can't wait for these daily deal business to go away because I don't think it benefits anyone.

MichaelApproved 14y ago
"I can't wait for these daily deal business to go away because I don't think it benefits anyone." If you don't like these deals, then don't use them but don't say that they don't benefit anyone. Customers benefit from these deals all the time. 50% off a meal is a great offer! I think the biggest problem with these deals (for the wait staff at a restaurant) is that people think they should tip based off the discounted meal, instead of the full price. It's a deal on the meal, not a deal on the tip.
- jarek 14y ago
  > It's a deal on the meal, not a deal on the tip. The tip is obviously dependent on the price of the meal: most people will tip more for a more expensive meal, usually following a ratio. (20% or what have you.) People ordering the more expensive meal on the menu by and large tip more than those ordering the least expensive meal. Why should this change for the groupon meal?
  - MichaelApproved 14y ago
    Because when you get the bill, it's reduced from the retail price. People tend to tip on the price in the final bill. That final bill is discounted and they base their tip calculations on the discounted price, not the retail price. Even if they mean to tip %20, that %20 is based off a reduced number so the waiter is not getting tipped on the full meal price. When I tip on a discounted meal, I calculate based on the retail price. My original comment suggested that many people might be tipping on the discounted price and that could be why waiters don't like daily deal customers.

physcab 14y ago

The bigger problem is that you don't have any way to measure the success of a daily deal. Yes, of course you are going to lose money when doing the promotion...that is your "cost". If I want people to see my website and I pay an ad-network for clicks, I will get a bunch of costly low-quality users who did not discover my site organically. But the difference is that I can track people who come to my website and see how much they spent not only on Day 1, but on Day 365. And there exists some customer lifetime value that should in aggregate be more than your acquisition costs. Unfortunately you don't have that data and the best you can do is guess, which doesn't put much faith in the daily deal sites.

shredfvz 14y ago

This is very thoughtful of you, but the key phrase here is "at least in our industry". Truthfully I believe running a groupon offer should be done by very few businesses and only then after intensive numbers crunching. Yes, the daily deals space was a bubble - a BIG bubble - but only because substantially more businesses took advantage of it when they shouldn't have. Importantly, they probably did so because they knew jack about their bottom line and even less about marketing and sales. That doesn't mean you can fault Groupon or LivingSocial for trying to make money off of you hand over fist. When mom and pop businesses launch a Web marketing effort, they often have little appreciation for, let alone a rudimentary understanding of the Internet, and just in general have NO IDEA what they're dealing with. And yet they'll happily launch their business into a jungle full of rabies-infected cannibals, without so much as a guide. Why? Because the brochure said it was all sunshine and rainbows. If you don't run the numbers beforehand, don't do a group buy offer. And please, don't blame Groupon for your own actions if running a daily deal wasn't the right choice for your business. It's risky indeed to run a daily deal, especially when you're selling a commoditized product in a big market with dozens of entrants all vying for limited regional traffic. Your average customer lifetime value probably won't be high enough to justify a 70+% hit to front end revenue, assuming repeat business is rare and loyalty is low. What you're doing with a daily deal is similar to running a free trial offer for a consumer good that converts to a $10/mo paying customer for 3.5 months, 2% of the time. In this scenario, giving up any amount over $2.00 on the front end per customer is the equivalent to lighting your money on fire. For context, the most successful marketers online wouldn't attempt anything approaching that without a fully built back end sales funnel, probably with a call center and thoroughly tested followup method. And yet the owner of Daisy's Ice Cream Scoops thinks she can somehow make it work with her homemade strawberry sherbet. Yet, many anti-groupon commentators would have you believe daily deals are objectively worthless to any and all other businesses. This is not particularly directed at the OP, but for the love of all that is holy, Do Your Due Diligence. The daily deal promotion is merely another promotional tool at your disposal in a free market, and if you shoot yourself in the foot with it, you have no one to blame but yourself. LivingSocial AFAIK had deep roots in CPA and online advertising. You see people criticising CPA as seedy all the time, but the fact is the online advertising giants know what makes people buy, and they do it over and over, and over again. They live and breathe direct marketing like it's a requirement for survival in the industry, because it is. That expertise does not, however, mean you stick your neck out for your customers, or even pretend to care about your business partners. Too often in the online advertising industry are immediate profits sought above all else, with reputation and honesty being tossed aside sometimes. I'm not privy to any of LivingSocial's financials or business practices, but it really wouldn't be that surprising if they had trucked over everyone and made off like bandits. Hopefully they're smart enough to run a sustainable business.