Watch out, Groupon and LivingSocial: A giant has entered the local daily deal market.
Amazon, which is building two massive distribution centers in the Richmond region, has brought its daily deal coupon business, AmazonLocal, to the Richmond area.
AmazonLocal Richmond launched last month and has offered discounts for local restaurants Strange Matter, Royal India Express and Stuffy Subs, as well as discounted carpet cleaning, eyeglasses and hypnotherapy.
Amazon joins a crowded market of daily deal sites, including Groupon and LivingSocial and other small and local copycats. Both Groupon and LivingSocial went live in Richmond in 2010.
Amazon didn’t respond to calls by press time.
LivingSocial spokeswoman Jody Gavin said the Richmond area has been receptive to the daily deal business, citing a Julep’s half-off promotion that sold more than 2,400 coupons. Richmond’s Cross Creek Nursery and Landscaping earned a spot on Groupon’s Best of 2011 list after selling more than 1,000 coupons on two separate promotions.
But Cross Creek Vice President Mark McAuliffe isn’t sure whether the deal generated any profit for his business.
“The jury is still out on the whole thing,” McAuliffe said.
McAuliffe said that the $40 coupons expanded Cross Creek’s customer base but that selling so many coupons meant giving away large amounts of steeply discounted merchandise — often without selling anything at full price.
“There are definitely people who buy the coupon and spend $40 exactly,” he said.
Julep’s owner Amy Cabaniss said her business benefited when customers redeemed the coupons because they typically spent more than the coupon offered.
She also said the deals are a great way to spread awareness for new businesses.
“Thousands and thousands see the offer, even if they don’t buy it,” she said.
McAuliffe agreed, saying he was pleased with the new customers Groupon and LivingSocial deals brought to his business. But Cross Creek will run fewer promotions in the future, McAuliffe said, as the promotions’ ultimate effect on the nursery’s bottom line is unclear.
Amazon’s move comes amid signs that the once red-hot daily deal market might be cooling.
According to a January Daily Deal Media report, the number of daily deal publishers dropped 7.61 percent in the second half of 2011, and Groupon stock fell to an all-time low below $9 per share Monday.
Amazon launched its daily deal business in 2011 by offering promotions with the help of LivingSocial. Amazon also owns a large stake in LivingSocial as a result of a $175 million investment in late 2010. AmazonLocal ran its first promotion independent from LivingSocial this March, according to a report from Reuters.
I work with a lot of small businesses that have tried either Groupon or Living Social. Rarely do they increase their profits with these coupons and most say they will never do it again. These business owners lost money and / or long term customers as a result. Either the discount was way too deep and each transaction was a loss, or the increase in transactions forced them to drop the ball servicing their existing (profitable) customers. Just make sure you know what you’re getting into.
Excellent comment Chris and right on point. Deep discounting is NOT A WINNING STRATEGY. It is almost impossible to out Wal-Mart, Wal-Mart. Drive value, not discounts folks. I love a good deal myself, but not once has it converted me to along-term client. My 2 cents.
I’ll be the first to admit that the majority of these deals I buy are for the discount and not to try something new. Having said that, Rostov’s on Main Street gets my coffee business now where before I wasn’t even aware of them. But they are the exception to the rule.
I believe one significant downside (for the merchant) occurs when the establishments, particularly restaurants, run their deal multiple times. They are in effect discounting their brand. Once I see an offer run more than once it lowers the bar for how much I am willing to pay to eat there at any time. I don’t think I have ever paid full price at Superstars Pizza because I can always stock up on certificates at Restaurant.Com.
I think that to get these offers to work best for the merchant the real hook is to get people to try your place once and then be willing to come back for a superior product – at retail. There are lots and lots of restaurants clamoring for business. You can buy a decent $10 burger anywhere. There aren’t many gourmet coffee shops. So perhaps that’s why Rostov’s gained a retail customer and why Superstar’s Pizza hasn’t.
To Mark McAuliffe I would ask, did the $40 customer walk away thrilled with your nursery? If so, that customer will relay the experience to his peers and likely come back for more himself (at retail). Was the Groupon run more to get new people like me to experience what you have to offer (I did not purchase that Groupon BTW) or was the motive to ramp up an existing sales base? If the latter, I would be concerned about discounting the brand. Once I see a Groupon run twice, I’ve been conditioned to anticipate it a third time…
It’s a dangerous deal, especially for the small business owner. When the deal goes away, so do the customers. Better to get them with awesome product and service. Build loyalty, not frugality.
Chris nailed it on the head. Deal chasers are not the right customers for the local SMB.
I bought the CC Nursery deal and, just as McAuliffe said, spent just $40. Cross Creek is a beautiful facility but pricey and without the discount it is much cheaper to buy from Lowes…with not much degredation in quality…hate to say. Having said that, I ran a deal for my business and it was very successful. It is a service business, though, and the cost of doing business besides rent, electric, and a few supplies(which does add up) is mostly my time. I was able to introduce customers to the business and a large percentage returned and continue to return for the service. I offerred services that had a retail value of about $150 for $45 of which I sold almost 200 groupons and supplies/overhead probably ran me just under what I was paid by Groupon.
Bottom line, service businesses probably fare financially better but being that you don’t have a tangible product to sell you have to sell yourself!
Good question Chris – We feel like because we have always been a little of a hidden gem that once we get people here they tend to become repeat customers. We have found that mostly true with the Groupon customers so far. What I was trying to express when being interviewed is that Groupon/Living Social seem to be worth while once or twice but not on a continual basis.
I would like to point out to Martha that we are certainly not an expensive place to buy from as she states. Where Lowes and most other garden centers buy all their plants thru middle men, we actually grow most of our plants ourselves. This gives us the ability to sell our plants at really good prices to our customers.