Do not purchase Groupon Clone or daily deal scripts that cost upfront (albeit one-time) hundreds to thousands of dollars, especially if you are new to the daily deal industry, or, worse, new to online marketing/selling generally. Doing so does not align the interest of the vendor with the interest of the daily deal website owner (you). Once one-time payment goes through, vendors have very, very little incentive (whether they do so is another question) to support and continually improve the product for their customers, because their revenue depends solely on the acquisition of new customers.

Anyone in the daily deal industry knows that starting a daily deal website from inception all the way to the generation of sustainable revenue takes time and effort. Vendors that collect a large payment upfront have very little interest in ensuring that the daily deal website’s entire business and technical processes are well-supported. Furthermore, there is no escape valve for 1) website owners who eventually realize that creating a daily deal website is hard work, way more than they were ready to invest, or 2) website owners who eventually discover a better/cheaper/more suitable solution out there. Human beings have the tendency to mull over sunk cost (e.g. “I've paid $1,000 for this script, I better use it and make it work.”).

Buying whole scripts and self-hosting it is like buying an 18-wheeler tractor to drive down to the neighborhood grocery store to buy a candy bar; a bicycle or cab ride would have been more than sufficient. Learning the ropes of the business does not need to be expensive.

I believe that people thinking of entering the daily deal industry should know of all alternatives when it comes to setting up a daily deal website. I am writing this article just to bring to your awareness the lesser known alternative of daily deal platforms, like ours, Zuupy CrowdDeals (http://www.zuupy.com), ChompOn, DailyDealWorks, etc. that either 1) charge a flat, low monthly fee, and/or 2) charge a percentage of your revenue, both of which are aligned with your interests. If we do not support your business well, you either 1) cancel your subscription and cut your losses or 2) make no revenue, lose no money, and thus the vendor gets paid nothing as well, respectively. Besides, we are reputed to be much easier to use; everything is already set up or at least easy to set up, and you will never need to worry about hosting and server issues.

I am even willing to promote our direct competitors above for credibility reasons; go ahead and compare us to the rest out there and decide for yourself a solution that is suitable for you. We who maintain daily deal platforms work extremely hard to provide a platform that is reliable, constantly upgraded, and capable of generating sustainable revenue for our customers, primarily because our financial interests are directly aligned with yours. We earn our revenue from our customers in the form of small monthly payments or commissions by delivering value day after day, not sell to you with vague promises until you are finally willing to part with hundreds of dollars, a one-time event.

I just felt the personal urge to share with anyone out there who needs to set up a daily deal website for the first time the possible risks of buying scripts that you may not even be sure works. All daily deal platforms, including ours, let you try out our software for free for 15 to 30 days, no strings attached. If I can say something on behalf of my company and our competitors, it is that we are sincere in building a long-term relationship with you and helping you grow, because our very livelihood depends on it.

By now, most of us would have heard about Groupon’s Superbowl ads that somewhat led to an uproar. The most prominent ad, of course, was the one that spoke of Tibet’s political situation and Himalayan fish curry in the same breath. Despite the controversy, we believe that Groupon had a net positive gain from the ad.

Here is why: the ad triggered a knee-jerk reaction from a vocal minority who in most likelihood are not and will never be Groupon’s customers, which inadvertently yet effectively spread the word about Groupon to a much wider group of people who may or may not be offended. We venture to guess that the people who would be genuinely concerned about the political situation in Tibet are by and large not the same group of people as the consumerist, bargain-hunting demographic group that Groupon is targeting. Even if they are, avoiding 50%-off deals that they want because of some personal ethical/political principle is hardly rational. Perhaps we should all strive to create controversy that would only offend a vocal group of people outside of your target audience, in hopes that the offended group would spread your brand via word-of-mouth marketing to your non-offended target audience.

Another tactic that Groupon is allegedly using is to ask retailers to double their “usual price” and run a deal at the real original price, representing the “discount” as a 50% cut. Clearly, this is some form of misrepresentation, and we ourselves have even pointed out that such tactics are possibly already adopted by many retailers. The lesson to be learnt here is obviously that many consumers are irrational, and would rather buy during a sale – farcical or not – than at full price. That means running promotions, deals, contests, etc. with regularity to appear “fresh” and “seasonal” to consumers, regardless of the actual savings or absolute price points.

P.S. For those of you curious to read Andrew Mason’s official response to Groupongate, if you will, see here.

LivingSocial, Groupon’s closest competitor, recently launched a group deal offering $20 Amazon gift cards at $10 apiece. This group deal ended up being the best-selling group deal of all time and came shortly after it was reported that Amazon invested $175 million in LivingSocial (you can be the judge and link those two things together). Certainly, there are some things that we can learn from LivingSocial’s (and Amazon’s) spectacular success. We ourselves also have our speculations about how and why the group deal succeeded:

1. The deal sells a discount, not a discounted product. Perhaps the biggest reason that the deal succeeded is that, all things being equal, consumers like taking advantage of savings per se more than savings tied to a specific product. Selling a general discount thus made the deal more relevant to everyone at large. After all, as suggested by its logo, Amazon sells everything from A to Z.

2. Gift cards serve as common gifts. It is no secret that gift cards are commonly seen as gifts; they even have the word “gift” in it. Consumers buy in a slightly different frame of mind when it comes to shopping for gifts. They tend to have greater willingness and urgency to make a purchase, and the core concern is usually “fit” – whether the gift suits the recipient. Gift cards are an excellent choice for gifts, since it transfers the cognitive costs of choosing a specific item to the recipient herself. Alas, handing over cash is still too crude for Western culture (though it is a very common practice in Eastern cultures), so gift cards are conceived as a convenient intermediary that nonetheless captures the equivalent value of the gift that the giver is willing to give.

3. It’s Amazon. Most people are already willing to pay full Amazon price for anything Amazon. Running a group deal for anything Amazon is, in economic terms, plainly surrendering consumer surplus to consumers and more. Most things on Amazon already sell like hot cakes on Amazon, and giving a discount when people are already sold is like proposing to a girl and giving her a jet plane in addition to the diamond ring that already made her said “yes” earlier on.

4. It’s Amazon. Most online retailers know that Amazon is quite a different animal compared to themselves, not that they have no good reason for thinking that. Simply put, Amazon can afford to lose $10 per customer (on the surface) but will make it up over time based on brand loyalty and customer lifetime value. $13 million is pocket change to Amazon, an expendable marketing cost, if it means that they can convert a boatload of people who have never shopped online into regular online shoppers. That is where the untapped market lies for them anyway.

Clearly, there are many more reasons as to why LivingSocial and Amazon succeeded with this one, and we could all speculate till the cows come home. Unfortunately, we believe that the tactics that we shortlisted are not that easily replicable for the average online retailer. Sure, we all can sell a general discount for our custom jewelry store, but consumers must want what we sell in the first place. Also, your competitors are going to sell a discount as well at your first sign of success, setting the stage for fierce price wars. Any fool can drop prices, but it takes wisdom to drop prices and make it profitable in the long run. In other words, it is easy to reel the fish in (get people to give a hoot first), but it is much harder to cook the fish (convert them into loyal, repeat, evangelizing customers).

Some small business owners like to wax lyrical about how Groupon is detrimental to their business: it cheapens the brand, it trains consumers to be bargain-hunters, it kills margins, it rarely results in brand loyalty, etc. However, the fact is that we know that consumers have been giving Groupon a lot of money since its inception (about $800 million a year now), so for small business owners to avoid considering Groupon as a tactic within their marketing strategies would be negligent at best.

Here are some reasons to give Groupon a go:

1. Groupon is to small businesses what free samples are to chocolates.
Groupon is a low-risk way for consumers to try out brands that they would have otherwise avoided or even product/service categories that they would not have paid for previously. Some services have high price barriers, making it almost impossible for these businesses to expand their customer bases beyond their regular customers. Like it or not, Groupon has the ability to generate awareness and increase brand visibility by guaranteeing a fixed number of paying customers from the outset (margins are another story, but getting people through the door in itself is no mean feat).

2. Groupon generates leads for the businesses themselves to engage and win over.
By its very nature, Groupon attracts a large group of different consumers, not just bargain hunters. Complaints about customers not returning after the first try or customers behaving unreasonably cannot be piled on Groupon alone; after all, Groupon generates leads in the form of low-margin sales for retailers and small businesses for upselling or to convert into repeat customers. In other words, Groupon is meant to generate the opportunity for small businesses to engage x number of consumers, where x is a large number, but does not purport to generate repeat customers. Responsibility of the latter should fall on the small businesses themselves.

3. Groupon exposes weaknesses in small businesses, which helps diagnosis.
The less-considered impact of Groupon is that it causes small businesses with fundamental problems to blame Groupon when their inherent shortcomings become more visible upon running a Groupon deal. For example, many retailers say that they cannot “make the numbers work” for them, implying that they are basically competing on low margins from the outset, which may be a problem in itself. Also, if a small business needs to provide massive discounts simply to acquire customers (not for any specific purpose like exploring a new market segment), it reflects poorly on the merit of their current offering and customer acquisition plan. The fact that they are unable to convert first-time visitors into repeat customers, despite the large sample size provided by Groupon, may also indicate a problem with their ability to retain customers.

Ultimately, the correct way to assess the potential of Groupon should be to view it in light of its intended purpose: a marketing investment, not an engine to drive short-term profits. If small businesses think of it as an advertisement engine that is capable of generating a large number of guaranteed leads, perhaps small businesses would know better than to use Groupon simply to boost short-term sales.

The value proposition of the group-buying model for the average consumer is clear: to save money. Group deal websites like Groupon and LivingSocial push out deals that get cheaper with each participating shopper. The fact is, however, that the surefire way to save money is not to spend it at all; after all, a dollar saved is a dollar earned. We can live fine without most of what is advertised on Groupon, so what is making consumers buy in drones?

At the risk of stating the obvious, group-buying works because consumers are by and large irrational. Discounts and promotions are pushed as money-saving opportunities when, in actuality, retailers set the original retail price, thus the magnitude of savings can be exaggerated as much as the retailer wants. The only limit is the extent to which consumers would buy (i.e. believe) the discount terms. Yet savings represented in dollar amounts or percentages in deals somehow lead to a strong internal response in consumers, one that makes consumers feel dumb for not participating in the deal.

If that is the case, every retailer can theoretically increase their sales and profits immediately by marking up every single item they sell as much as realistically possible and then publicizing their original prices as discount prices. Perhaps this theory is also the reason that one can rarely find any retail store anymore that does not have some sort of sale going on at any given time.