Over the past few years there has been a massive rise in the number of daily deal websites. It’s a web-based business model in which a single type of product is offered for sale for a 24 hour period. When you look at these deals you have to say they are really hot, and why would you not want to take advantage of them. But the issue is whether this is a sustainable business model.

Lets take an example and look at the numbers. A restaurant offers a daily deal of a $20 lunch discounted to $8. From that $8 the restaurant owner will have to pay the daily deal website for promoting the deal and doing all the work behind the scene. I don’t know what these costs would be, but it’s imaginable their slice will be 50%. That leaves the restaurant owner with $4 – and that might just be the cost of the ingredients.

The restaurant owner has a shortfall of the costs of labour and the other costs of keeping the restaurant open during that lunch period. Not only that, the daily deal patrons are taking seats from full paying patrons.

do daily deal websites offer an opportunity to generate long term business?

The restaurant owner has got a massive marketing challenge. The loss-making leads that arrive at the restaurant (wanting a $20 lunch for what might just be the cost of the ingredients) have to be converted into repeat business, because it’s only in the repeat business that the owner is going to be able to re-couperate costs and generate a long-term profit.

In this case, I don’t think it likely that the restaurant owner is ever going to break even. Maybe ok if you’re doing a fire sale and want to exit the businesses.

what motivates buyers?

There can be no doubt that buyers are motivated in the first instance (it’s cheap!), but after that we have to look at other reasons why they’ll continue to come back. Many will say it’s to do with loyalty. I think loyalty is a 1980′s concept. People aren’t loyal, they probably never have been. What people are is habitual. People (all of us!) form habits very easily. It’s part of our natural instincts and is one of the reasons we have survived this long on the planet. We find out things that work and then repeat that behaviour over time. Often we don’t know why we continue to do the same thing. if we are asked, we’ll justify it, but that won’t necessarily be the reason.

Every now and then we’ll develop new habits and break old habits. In order to retain customers the marketer needs to give reasons about why retaining that habit is better than starting a new habit, or (in the case of developing new business) why forming a new habit is going to be better in the long run than retaining the existing habit (ie buying from your competitior).

can an $8 lunch change a habit?

Let’s get back to our restaurant example. Can an $8 lunch change a habit? We’ll that depends. I’m sure that some people will probably return as full paying customers of the restaurant if they find the meal lives up to their expectations and the service is great. But many others will have had their habits already formed by the daily deal websites that shoot out cheap deals everyday.

The daily deal websites are creating new habits of cheap deals and cheap dining. The people who come to your restaurant from the daily deal website are ultimately not your patrons, rather, they are the patrons of the daily deal website. So, beware!