NEW YORK — If FinovateFall 2011 taught me one main lesson, it’s this: daily deal companies are getting crushed from competition and/or flawed business models and fintech startups believe they can offer consumers, retailers, and sometimes banks, a much better — and profitable — version of the payment method.
Core to overhauling the prevalent daily deals model means ridding irrelevant offers to consumers’ inboxes. Not everyone has purchasing fantasies of 50% off helicopter lessons after all. With that in mind, a major revamped reward notion carries three major principles: targeting deals to particular shoppers based on their purchasing histories; making printed vouchers a relic of the past by tying rewards to consumers’ cards; and finally closing the metrics loop for retailers. In other words, vendors want retailers to know how many return shoppers they gained from their offers, for example.
Beyond the theme percolating during the Finovate demos, this idea came up when I had a chance to sit down last week with one of the demo-ers, Cartera Commerce Inc., a company that chooses to work with the banks to deploy its rewards model.
“There’s a trusted relationship [with banks],” Marc Caltabiano, vice president of marketing and products at Cartera, tells Bank Innovation. “They aren’t daily deal sites that will disappear.”
The rewards overhaul revival also came up when I met up with Offermatic. Though the company doesn’t use banks as an intermediary, the startup does rely on consumers transactions as a way to decide who should receive what discount.
“The daily deal model isn’t working for bigger brands,” Faisal Qureshi, founder and chief executive of Offermatic, tells Bank Innovation. “There are some key issues with the model.” Why? Existing models fail to target consumers with relevant offers, and retailers lack analytics on how many new customers they got from deploying the marketing strategy, he said. In other words, a one-size-fits-all model won’t cut it in the marketing space.
Certainly, this sector will be interesting to follow, and we expect some fall out from the ever-growing myriad of companies that play roles in the ecosystem — especially as the daily deal titans finesse their approaches. In fact, TechCrunch reported today on how Groupon is closing the redemption loop to inspire better customer loyalty. But to find the “winners” of the space will take time. As Caltabiano told us: “The model is relatively in early days.”
The real problem with the daily deal model is the high discount. It limits the prospective customers you can target since you would never offer your current customers that discount and remain in business for very long. The local Italian restaurant attempts to capture Italian food lovers who have never tried their restaurant or convert French food lovers to try Italian food. The former is a zero sum game among the Italian food restaurants and the latter is an increase the size of the Italian food market exercise. The former is analogous to the airline price wars of the past only much worse because of the size of the discount. The latter creates a healthier marker for all Italian food participants, but the other restaurants in town will fight back. Along the way, the merchants are most certainly bleeding profits because current customers are happy to pay less than they were paying for the same food. In the end, you come back to the question: How long can you sustain a price war before the participants (merchants) realize their folly and choose to return to their normal slow, but steady growth based on reasonable pricing strategies? When they return to those pricing strategies, it will be interesting to see if there is room in the profit model for the daily deal site’s commission.
Here’s an interesting article that suggests a similar theme: http://moneyland.time.com/2011/08/30/how-daily-deals-are-losing-their-allure-for-businesses-and-consumers-alike/