Today I received an invitation to join Bync, a new deal site that promises to offer deals that I WANT as opposed to deals that retailers are offering (TechCrunch launch article here).
By analyzing my bank and credit card transactions, Bync will determine which stores I have shopped at in the past and therefore, at which stores I want deals. Unfortunately, Bync is doomed to become yet another in a long list of consumer deal startups that are just further poisoning the retail well.
Bync vs Groupon / Living Social
Groupon and Living Social are the big players in the retail deal websites, and there are literally hundreds of others ranging from unique schemes (e.g. Woot) to a long tail of weekend hacker projects that won’t die. Bync’s scheme does have some good logic though – if I have shopped somewhere in the past, there is a higher likelihood that I will want a deal there than the likelihood that I will want a deal on teeth whitening, paint balling, or private massages (the drivel constantly being pushed on Groupon).
But, that is NOT to say that I will want a deal at Target or Kohl’s just because I have patronized those retailers in the past.
Why Deal Sites Are Doomed: They Are Not Serving Their Primary Customer!
Groupon and Living Social made a huge bang in their early days and delivered a serious injection of customers to the retailers which offered deals. Unfortunately those retailers quickly found mixed results with making the customer injection a profitable endeavor.
Retailers find three difficulties in getting good value from deal sites:
- The discounting required is too drastic, often yielding 75% off normal price (a $100 product is offered for $50. Then the deal site takes half of the $50payment resulting in the retailer receiving $25 for a $100 product).
- The new customers are too thrifty. Retailers are not always able to wow the deal site customers into more profitable upsells or loyal repeating customers.
- Deal site offers tend to create a sudden massive spike in customers which sounds great, but often results in the retailer struggling to provide good service levels and even crumbling under the pressure of the demand.
Groupon, Living Social, and most other deal sites do not charge the consumer, but rather charge the retailer (as noted in difficulty #1 above).
Bync may well offer deals to consumers that are more targeted than the deals offered on Groupon and Living Social, but there is no apparent strategy to better service their ultimate paying customer – the retailers. Indeed they do not seem to be addressing any of the three customer problems.
Unfortunately, Bync has another obvious barrier: they expect consumers to hand over access to their bank account and credit card. Mint has been able to convince consumers to hand over access to bank accounts, but very few others have had even slight success in overcoming this barrier.
The Ultimate Deal Site Concept
I have good news for you, Mr. Ryan Bales (Bync CEO and Founder), the following concept is the ultimate deal site! The following concept is better than Bync, Groupon, Living Social, and all other deal sites in the following ways:
- Better solves the general problem of getting retailers more customers
- Comprehensively addresses all three of the problems with current deal sites
- Offers deals to consumers that are explicitly and exclusively deals that consumers want
The ultimate deal site will work as follows:
- Consumers announce the level of discount they would buy (anywhere from 1% – 99% discount) at any retailer in the world
- Consumers can edit / cancel their deal request at any time
- Retailers get a daily email alerting them of groups of customers growing online requesting various levels of discounts
- Retailers decide if / when they want to accept a consumer’s discount request, or can choose to counteroffer with stipulations (e.g. “We’ll give you the 30% off that you requested, but only on a purchase of $100 or more” or “We’ll give you the 30% discount that you requested, but it’s only good on weekdays”)
You may recognize this setup – it mimics an open stock market!
This model allows retailers to control their own destiny:
- Retailers can engage new customers that wouldn’t likely patronize their establishment if not for an attractive discount
- Retailers can control the discounting level by only accepting deal requests at discounting levels that are affordable for the retailer
- Retailers can control the risk of attracting too-thrifty customers by not accepting deal requests beneath an acceptable level at the judgement of the retailer, or by counter-offering with deal stipulations
- Retailers can control the timing and size of the spike in new customers by accepting a manageable number of deals at any given time
Ultimate Deal Site Example
Here is a theoretical small scale example of how the Ultimate Deal Site would progress:
Let’s assume first that 4 consumers request deals at Retailer X
- Consumer A requests 80% discount
- Consumer B requests 60% discount
- Consumer C requests 40% discount
- Consumer D requests 20% discount
Retailer X then decides that sales could use a boost and accepts Consumer D’s request!
Retailer X gets 80% of their normal price revenue (minus a fee to Ultimate Deal Site of course), and Consumer D gets a deal which she requested! Consumers A, B, and C continue waiting in hopes that Retailer X will soon get desperate for sales and accept their deal request. Retailer X can at any time go ahead and accept those deals… or not!
Of course Ultimate Deal Site would be attracting far more than 4 consumers and 1 retailer. Assuming Ultimate Deal Site was well managed, the benefits of network effect would begin to apply. This would lead to more complex consumer and retailer decisions.
Consumers would see that there are many other consumers requesting deep discounts and would be pressured to “win” the deal from the retailer by requesting a slightly smaller discount. This would develop a group of consumers requesting deals on a bell curve across the discount spectrum (1%-99%).
Retailers would then be able to review their discount request curve and take strategies such as “accept the top 100 deals” knowing ahead of time what the average discount of those 100 new customers would be. Or they could “accept all discount requests of less than 40%” knowing exactly how many new customers they would attract and that the average discount granted would be something like 30% off of their normal retail prices.
Challenges for Ultimate Deal Site Success
Why aren’t I out starting up the Ultimate Deal Site in hopes of striking it rich like the founders of Groupon or Living Social? After all, I did quit my job a few months ago to start my own business… Really there are 2 reasons:
- I am not passionate about this concept, and am spending my time working on a business concept that I love.
- The Ultimate Deal Site faces a number of challenges
The primary challenges I’ve already identified (surely there are others too) for anyone reading this post and thinking about running with it are as follows:
- Retailers loathe deal site sales people, and will be very difficult to convince of a “better concept on deal sites” – an after effect of their frustrations with Groupon / Living Social and the onslaught of copy-cat sales people that have followed since
- Retailers are incredibly fragmented – the largest retailers tend to manage deals in house, and the small guys are scattered all over the country – making them incredibly difficult to sell to. Indeed this has been one of the largest stock market hesitations in investing with Groupon… as well as one of their biggest competitive advantages as they have already created the sales force
- Consumers are hard to attract without premier deals in hand, and many consumers are scared to request discounts. For example, ask someone “how much discount would you request from Apple” and their knee jerk response is almost always “Apple doesn’t do discounts”…
Do you disagree? Have I missed Something?
I have a few old friends from college that work at Living Social – do you guys disagree with anything here?
Anybody at Bync care to add a hint about a super secret sauce that I am totally overlooking which will allow you to change the game?
As a consumer – what site is the most compelling for you – Groupon? Living Social? Bync? Ultimate Deal Site?
As a retailer – what site would be your preference?