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What's the lesson from daily deals sites?

I found myself in a, ahem, lively discussion with someone recently. It started when I said “there was always something wrong about the daily deals businesses (i.e. Groupon), but I’m sure they’ll teach us what’s really needed.” Turns out this person ran a local daily-deals site. Oops.

My feeling is that anytime something doesn’t take root and grow into a lasting business, there’s a lesson to learn. Early social-networking sites weren’t quite a match with needs. More recent ones have gotten something right that the early ones missed. More than one thing needs to be gotten right. In particular, to achieve good user adoption, the value you deliver for the user, what you ask in return, and what the user perceives of both the value and the returned favor are all very delicate balances.

I always felt that these were out of balance in daily-deals businesses because they framed things wrong for the customer. If I get a daily-deals coupon to go try something out, I might be motivated to try it, but my core belief is that if I wasn’t already a customer, I’m not going to become one after my cheapo trial. I think one of the main reasons for that is that the daily-deal coupon sends the signal that the product isn’t worth the usual price. I firmly believe that most people live by “you get what you pay for,” and that this is a two-way street. If you don’t pay a lot, then you don’t think it’s worth a lot.

When I joined Percona, their consulting rate was $200 per hour. Complaints about this high rate were widespread, both externally and internally (consultants thought it was too high also). But something funny was going on: customers wouldn’t keep their appointments with consultants, and they didn’t seem to care. I made it a policy that missed appointments would be billed anyway, and that didn’t change anything. So I experimented with the rates. After trying out various rates for about a month, $300 per hour seemed to be a sweet spot. Serious customers were still willing to pay, we weeded out many bad customers who only caused trouble, and most importantly, a lot fewer appointments were missed.

I experienced something similar in my individual consultancy. I worked on a pro bono basis for a local immigrant health clinic. I had a bad feeling that I was taken for granted, and one day when I was at the clinic early to finish up the project, I stood in the early morning cold for half an hour before I realized that nobody was coming to meet me and let me into the building. After that I stopped doing anything pro bono, and I always had a good feeling that my services were appreciated.

So while arguing about the daily deals sites, I recalled the feeling I always had: that there was something wrong with the business model – that it was undermining what it was supposed to promote. And that vague notion came back to me: the decline of daily deals should teach us what ought to be done instead.

Later, it came to me: A daily-deals offer is like a one-night stand, with no expectation of a long-term relationship. Without this agreement at the foundation of the relationship, the match between the ask and the offer is lopsided, and the “customer” becomes an exploiter, instead of a customer.

And with that, I realized that I had it wrong. Far from being the leading indicator, the daily deals sites were actually behind the times. There have been businesses for many years doing what they should have done. I’ve supported some of them myself. I’m referring to BMG’s music subscription, Omaha Steaks, book-of-the-month clubs, gourmet coffee or wine subscriptions, and so on.

You begin these relationships with several subtly intertwined things, including a good introductory offer, an upfront agreement on the real value of what you’re getting in the trial, and an agreement to be a long-term customer. Oh, sure, you can change your mind and cancel after the introductory offer is up. But agreeing and then canceling is different from never agreeing. There’s probably a lot of psychological research related to what I’m claiming, and I’m sure that some of it contradicts me, but I believe that “buy 10 CDs at $1 each, then we’ll send one per month at full price thereafter, and if you buy X more within a year you get another batch at $1 each” is very different from “you can rip this merchant off by walking out of his store with $1 CDs and no actual or implied obligation.” With BMG’s music subscription service, you opt in and then you have to opt out again (either once-and-for-all, or once every month). And maybe your conscious brain says “I’m going to just cancel after I get my cheap CDs,” but I’m an astute enough observer of myself to know that my subconscious feels differently about the matter. In the back of my mind, I feel like I’m cheating BMG if I cancel before I buy enough CDs at full price to be a profitable customer for them. The conscience gets involved. It never gets involved with a daily deal – there’s no opt-in to opt-out of.

Perhaps what the daily deals sites need to do is bring a platform for this kind of long-term relationship, and managing the logistics, to lots of companies so they don’t have to reinvent it on their own. Perhaps there is a “next time we’ll get this right” for daily deals after all.

On that note, it’s a good thing Gearhart’s Chocolates doesn’t have a BMG-like deal, because you’d have me at “chocolate.” (If you don’t know who they are, it’s a local Charlottesville chocolatier that is easily one of the best in the entire world, and priced to match. I send their variety pack as thank-yous fairly often. Just another perk of living in Charlottesville.)

Posted on Thu, May 9, 2013. Approximately 1000 Words.

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