Monday, July 16, 2012

Genre Analysis: What is the problem of marrying MLM with Daily Deals

Shopping Card Gives you Daily Deals
but can they work as income opportunities?
EDITOR'S NOTE: Genre Analysis is my personal opinion on a particular genre of network marketing, like MLM + penny auction, or MLM + daily deals, and so on. 

Seems MLM can be combined with almost ANY regular business model out there, merely by switching out regular media marketing with network marketing. While this works on some levels, in many ways you can end up with what Seth Godin called a "meatball sundae". Today, the genre "MLM + Daily Deals" goes under the microscope. Does such a business model make sense?

IMHO, there are MULTIPLE problems with the entire genre.

The problem with daily deals is itself is really a marketing tool, like multi level marketing, not a business model. Groupon's business model is convincing the businesses to outsource the marketing to them, at least periodically, while Groupon enroll the potential customers and inform them about deals from you (and your competitors). Groupon charges businesses for the priviledge of getting on Groupon, as Groupon considers itself an advertising medium, and a business is supposed to PAY advertisers. What Groupon gives back for that fee is guaranteed number of customers who will walk through the door, and probably a lot more. 

However, consider this from the business POV. The business not only have to offer their stuff at a STIFF discount (usually 50% off, so it better be some VERY high margin stuff), it has to PAY Groupon for the privilege to do so. Not only are they sacrificing profit for a few hundred, perhaps over 1000 customers, they are PAYING for the privilege to do so. If you just need some cashflow, or generate some buzz, that may make sense. You can also limit the loss by limiting the coupon to say, 500 people, but overall, this seems to be a lose-lose proposition. You advertise to increase customer base and increase profits, not increase customers and SACRIFICE profits. 

Also, pricing expert Rafi Mohammed brought up an excellent point... Look at the CUSTOMER (i.e. a Groupon user) POV. If you pay only 50% of the price, for the whatever one day, are you LIKELY to come back for the SAME SERVICE at FULL PRICE? EVER?!  If you paid only $10 for this meal, are you EVER going to come back to pay $20 for the SAME MEAL?  No! 

Daily Deals basically is give every business a chance to offer a "loss leader". A loss leader is usually something priced by a supermarket at or below cost to get you to walk through the door, and hopefully spend some of your money on all the OTHER stuff that is far more profitable for them. Now EVERY business can offer a loss leader. 

The problem with that idea is when everybody offers a loss leader, consumers will pick and choose which one they want, and only shop loss leaders, and NOT buy any of the OTHER stuff (i.e. profitable stuff).  In a supermarket, you may be tempted to buy some regular groceries and whatnot. But in a restaurant? You're pretty much looking at drinks and desserts, and not all people order those. 

If I was a consumer and I tried this restaurant's $20 meal for $10 deal, will I go back to that restaurant one day? Probably not. I'll be looking for a similar offer from one of his COMPETITORS. He'll never see me again. IMHO, of course. 


Okay, so I think Daily Deals genre is doomed. So what about the MLM side of it? 

Also doomed, IMHO, of course. 

Think about it. WHAT PROFIT is being shared? In a product or service based MLM, you are selling something with a HUGE markup and relatively unique so you get a bit of that profit pie.  

So what profit is being shared? It has to be from the Daily Deal Biz itself... depends on what sort of revenue model does it use. If it charges biz a fee, then that *could* be shared, but then we're back to Groupon model, which doesn't need MLM. Besides, the biz contracted with the biz itself, Why should the Biz share the revenue? And the customers are ALREADY enjoying the discount. Why pay them ON TOP of that? 

The Biz *could* charge the customer to redeem an offer, and split the service fee among customer's uplines, but then, unless you have a LOT of deals going on, revenue from this is going to be minimal, as only a TINY fraction of the members will be redeeming a particular offer on a particular day. I seriously doubt even 1% of San Francisco Groupon members are redeeming Groupon coupons on any given day. And Groupon has several HUNDRED deals in any particular metro area at one time. 

Furthermore, we previously talked about competition. There is NO barrier to entry for this business. Google Offers, Living Social, and others are already in the genre. And they have the name brand behind it, and are already established. The startup MLM has nothing. 

So, no, I would not suggest you join this genre at all. I don't see much future in it. PAY to save money only works in buyer's clubs, but it doesn't work as an income opportunity. 

Enhanced by Zemanta

No comments:

Post a Comment