The Orbital Alliance Blog

Could Daily Deals Like Groupon and Living Social be Detrimental to Long Term Success?

Posted by admin

Jul 21, 2011 4:44:51 AM

Daily Deal sites like Groupon and Living Social are becoming very popular and more prominent, but are the motivational factors in a one-time cheap discount harmful to consumers in regards to the overall long-term success of those businesses being marketed?

Drive by Daniel PinkI'm actually reading a book right now by Daniel H Pink called "Drive: The Surprising Truth About What Motivates Us." for the J Robinson Group book club I am looking to attend for the first time. The book looks to debunk the current way companies use motivation tools to get employees to work, referring to the use of "carrot and sticks" as motivating factors to get people to do items. This was referred to "Motivation 2.0".

The book pushes the idea that this particular form of motivation no longer applies, and that based off numerous scientific studies and experience, the use of "carrots and sticks" can actually be detrimental to long-term results. The book goes into details about how to truly drive motivation through three main principles, autonomy, mastery, and purpose, but the part of "carrots and sticks" got me thinking about the current growth and explosion of daily deal sites and offerings.

Are Daily Deals Sites and Offers Setting up Local and Small Businesses for Long-Term Struggles?

Daily Deals are initially attractive to local and small businesses, because it can provide an immediate jolt of excitement, advertising, and pre-purchases of their product very quickly. But at what costs?

In a recent study by researchers at Rice University, 32% of those businesses surveyed that ran a daily deal promotion lost money, and 40% said they would not run a similar deal again. Groupon, one of the fastest growing online businesses ever, has received numerous backlash from businesses and merchants recently who were not satisfied with the outcome of offers on the site. This only addresses the initial problem, and that is an actual loss of money on the short term deal, but I'm concerned that there is a secondary wave of trouble that can arise from these "carrot" offers.

Daily Deal Promotions Foster Short-Term Thinking

In the book by Pink, one of the 7 reasons why "carrot and sticks" don't work is it fosters short-term thinking. An excerpt from the book: "In environments where extrinsic rewards are most salient, many people work only to the point that triggers the reward - and no further. So if students get a prize for reading three books, many won't pick up a fourth, let alone embark on a lifetime of reading - just as executives who hit their quarterly numbers often won't boost earnings a penny more, let alone contemplate the long-term health of their company. Likewise, several studies show that paying people to exercise, stop smoking, or take their medicines produces terrific results at first - but the healthy behavior disappears once the incentives are removed."

I know myself am guilty of this lack of long-term motivation... I have bought daily deal promotions from about 4 different companies, and each time, I went and did enjoy a meal or a product that I may not have normally have purchased or tried to begin with. I also did get a few promotions for places that I already frequently visited. And short-term, I was happy as a consumer. But there is part of me now, that is somewhat spoiled by that promotion, and now find it difficult to go back to those places without getting a similar or even better deal.

So what does the future hold?

I'm not to say that all daily deal promotions are bad, but I find it very difficult based off my own feelings and after reading the book Drive about motivational factors, that merchants and local businesses that embrace in these daily deal promotions may be hurting their ability to be successful down the road. What do you think?

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