What consumers need to know about daily deals

Oct 26, 2010 3:55pm


By Jeremy Gin, CEO, SiteJabber

Daily deal sites such as Groupon and Living Social now commonly pepper Facebook feeds and Pandora wallpaper ads. You may have seen some: “50% off Champagne brunch!” and “$80 in spa services for only $40!” While these daily deals are generally not scams, there are some pitfalls to be avoided. 

How daily deals work

A business (usually a local business) provides a product or service at a large discount (usually 50% or more) to a daily deal site. The site then lists the deal which will only be available once a certain number of deals are sold and within a certain length of time. This creates a sense of urgency and incents people who want to take advantage of the deal to convince their friends to participate. Daily deal sites rely heavily on this kind of “social marketing” (persuading people to sell to their own friends).   

Consumers who buy the deal will pay the site which will then issue a voucher for the consumer to redeem at the local business. This graphic illustrates the process. Interestingly, the daily deal sites will take 50% of the sales, leaving the local business with little or no profit. Despite this, local businesses are still keen to participate (often waiting months to get on sites like Groupon) in the hopes of acquiring new customers and or selling additional items to the people they bring in the door.  

Pitfalls to avoid 

1. Pressure to buy

These sites employ a series of effective sales tactics—giant “Buy Now!” buttons, ticking clocks to create a sense of urgency, maximum quantities to create scarcity, and perhaps most effective of all: convincing people to sell to their own friends. Deals can be great, but over-consumption can be painful.  

2. No refunds or customer service 

Once deals are purchased, little support is offered. Typically there are no refunds and little or no customer service on deals. 

3. Your purchase can expires before you can redeem it  

Many purchased deals are never redeemed—sometimes because of forgotten expiration dates but also sometimes because of the nature of the deal. That is, if a restaurant with only twenty seats, sells five-hundred Sunday brunches, and the deal expires in two months, it might be difficult to redeem your deal in the time allotted. 

4. Lots of fine print

In addition to expiration dates, many deals are more restrictive than they seem. They can only be redeemed under certain conditions or at certain locations. Many deals also cannot be used immediately. The fine print on these deals is a must-read. 

5. Being up-sold 

Because many of the local businesses offering these deals are not making much money on them (50% discount + the 50% they lose to the deal site) expect to be “up-sold.” That is, your relaxing trip to the spa might be often interrupted by your masseuse trying to get you to also buy a facial, mud bath, body wrap, and anything else that can help them recoup the cost of your daily deal.  

6. Your credit card number on file

It’s not to say that daily deal sites will necessarily do anything pernicious with credit card information on file, but they do generally store your credit card information when a deal is purchased (oftentimes the only notice of this is in the fine print). If this is something that concerns you, you may need to put in a special request to have your credit card information removed from their database. 

7. The local businesses are not always good

For the most part, businesses offering these deals are legitimate. However, the daily deal sites do not always thoroughly vet the businesses offering the services featured in the deals for quality. For example, a photography Groupon in Atlanta turned out to be a fraud. 

Consumer tip: research research research

Daily deals can offer real savings to consumers. However, as with all new services and unfamiliar websites, it’s always best for consumers to do their research before they make a purchase. Sites such as Groupon and Living Social have left consumers with a mixed bag of experiences that are worth understanding before jumping into the next hot deal. 

 

Jeremy Gin is the chief executive officer and co-founder of SiteJabber a consumer protection service which helps the public avoid fraudulent websites and find good sites. Consumers use SiteJabber to research unfamiliar websites, as well as read and write reviews of online businesses. SiteJabber is supported by a grant from the National Science Foundation and was named one of the top 100 websites of 2010 by PC Magazine.