It was inevitable. Groupon has not only spawned copycats like BuyWithMe and Living Social, deal aggregators and deal exchanges have now jumped into the smoking hot deal-a-day phenomenon. The latest entrant into the market, Lifesta, is “a marketplace for people to buy and sell deals from “daily deal” (also known as “group buying”) sites such as Groupon, Living Social, BuyWithMe and 60-70 others (and counting). On Lifesta you can buy deals you missed, look for interesting deals in your area, or sell any deal you bought and won’t use.” (Link)
Winners: Deal Sellers + Deal Buyers
Naturally, this seems like a win-win for the buyer and seller. Often times a Groupon will look enticing enough for you to make a purchase and the deal expires without being used. Buyers who are looking to drive a Porsche on the cheap or throw their poodle in doggie daycare as they whisk themselves away on an impromptu vacation will find Lifesta incredibly helpful. I’ll probably use Lifesta instead of Groupon now, as I have found that most sellers ask for a lower price than what they got the deal for. Win! The seller’s fee, however, is fairly steep ($0.99 + 8% of the sale price).
Losers: Merchants + Deal-A-Day Websites
Deal-A-Day websites have already seen hints of blowback from small businesses like Posie’s that have nearly gone bankrupt from running a deal. Merchants are encouraged to discount their products and services by 50% or more to ensure strong subscription and large purchase numbers for the deal. On top of the 50% discount, these deal-a-day sites take up to 50% of the revenue generated from the deal. That means merchants are running deals at a massive loss, a loss these websites characterize as a new form of traffic-driving advertising.
Deal-A-Day marketplaces like Lifesta will most certainly cause merchants even more worry. Before Lifesta, merchants could have expected a certain percentage of deals to be paid for but never used. Just as 10% of the value on all gift cards sold in the United States is never used, there is a certain percentage of deals that are paid for but never used. This percentage is pure profit for the merchant. Enter Lifesta. Merchants can now expect more redemptions, extending their losses even further. There is certainly value in driving traffic, but how do you keep that traffic coming back? A great first-time experience certainly helps, but I’d love to see some form of measurable ROI from a few businesses that have run a deal and can easily track customers.
The second reason why Lifesta might scare businesses away from running deals is that Lifesta creates a market value for each deal. They have smartly shied away from eBay-like bidding processes in this iteration of their platform, but I can see them moving towards an eBay-like model once their website achieves strong, sustainable traffic. For example, Loft 26 Salon ran a deal for a Coppola Keratin Treatment. The retail value of the treatment is $300, the deal was listed at $140, and the seller on Lifesta is trying to sell it for $160. I’m not sure it’ll sell for $160, but every dollar about deal price is sells for is money the merchant never sees. This could create a market for purchasing and selling deals, and merchants may sell far more deals than they could reasonably handle.
Finally, deals closing on Lifesta for far less than the original price can damage a merchant’s brand and devalue their service. Because Lifesta provides such transparency to these deals, merchants are going to think twice about whether they want their brands and services to be subjected to scrutiny outside the safer and more structured confines of the deal websites.