DailyDeal CEO Hits Back at Group Discount Bashing

By Silicon Allee |

Fabian Heilemann is the founder and CEO at Berlin-based DailyDeal. He presents his side of the argument in the fierce debate over the daily deal model, and the negative coverage it has received recently.

Feelings are running high as Groupon gets set to go public. Merchants who feel betrayed like Jesse Burkes always raise their voices, but right now even established business magazines like Germany’s “Wirtschaftswoche” speak about the “brutal discount battle”. Unambiguous debate rises to fever pitch with Rocky Agrawal explaining at Techcrunch why he wants “Google Offers and the entire daily deals business to die”.  To sum up, Groupon is polarizing.

Being a direct competitor we are not in a moral position to criticize Groupon or Google for any mistake they might have made. We don’t want to seek an economic advantage by incriminating Andrew Mason or Larry Page. Our goal is different:  When Silicon Allee asked us to respond to the recent negative media coverage, we accepted the proposal to clarify some issues.  We understand the criticism of Groupon in Rocky Agrawal’s aforementioned blog post, but we still believe in couponing as a successful business idea. For many of you this may sound like an oxymoron and that’s precisely the problem: The actual debate is emotionally charged and many of those involved in the discussion aren’t able to differentiate between Groupon and its competitors.

One of these is Rocky Agrawal. His criticism sounds general, but the problems he points out are perhaps typical for some American companies – not for “the entire daily deals business”. Rocky Agrawal misses that distinction.

So let’s do his job.

Rocky Agrawal says:

There is very little transparency in the daily deals business. […] I fear that customers will think that the generous discount is coming out of Google’s pockets or Internet magic, instead of the merchant’s pockets.

The truth is:

Mistakes like this are distressing, but they aren’t intended by any couponing company. It seems to us that they are first of all a question of culture and mentality: In Germany, our home market, people grow up with a summer sale, winter sale, Payback Points, clearance sale, trading stamps – they know how discounting works.

Rocky Agrawal says:

Consider what would happen if the deal companies broke out their fees like Ticketmaster does. […] People would be up in arms and complain about the fee just as they complain about Ticketmaster fees. […]Transparency alone would drive a race toward lower fees. Of course, none of the deal companies would want to do this.

The truth is:

Not transparency, but competition is already driving a race towards lower commissions and, in fact, some companies do reduce their commission.  Germany is the best example: DailyDeal respects the economic prospects of its merchants. Our commission is negotiable at any time. Due to this fact, many merchants turn their back on Groupon and co-operate with us to win new customers. That’s exactly the reason why we have become the leading German player.

Rocky Agrawal says:

Even if Google were paying the entire cost of the discount and merchants were paying nothing to be promoted, it sends a dangerous message to consumers that they should wait for “amazing” deals of 50-, 60- or 70-percent off.

For businesses, the notion that deep discounting is the way to acquire loyal customers is equally dangerous. Competing on price doesn’t get you love; delivering high quality products and services, engaging with your customers and creating unique experiences does. The best customers buy experiences, not price.

The truth is:

Couponing companies are able to protect merchants from bargain hunters by using premium marketing channels to reach wealthier target groups. DailyDeal, for example, benefits from its technological leadership in mobile couponing (DailyDeal is the only European couponing company providing apps for iPhone, Android and iPad) and commercial partnerships with renowned publishing houses like DuMont Schauberg and Gruner+Jahr as well as TV broadcaster ProSiebenSat.1. Some 41.2 percent of all coupon holders become loyal customers and turn back to our merchants. As a result, 97 percent of our merchants recommend us and/or co-operate with us for another deal.

Rocky Agrawal says:

The daily deals aren’t as simple as running newspaper ads. There is a lot of complexity and merchants don’t know where to turn for advice. So they get it from the deal providers. Some of the advice is just awful. […] There’s no mention of real best practices that would be good for the small business (but bad for Google), like make sure you get people to sign up for your Twitter or Facebook feeds. Or get their email address. Try to upsell them on dessert, wine or other high margin items so that you can eke a little bit of profit out of the deal.

The truth is:

This is not telling the whole story. Of course couponing is a new marketing tool and requires explanation. Our salesmen do a good job advising our merchants how to design a successful and profitable deal. As a result most of our merchants profit from on-top sales. For example, a restaurant owner who offers brunch at half price benefits from upselling drinks. We show him this possibility because we are interested in long-term partnerships with satisfied merchants.

Rocky Agrawal says,

The daily deals “solution” is to raise the cost of local advertising to the point where you can sustain a salesforce. It takes Internet advertising and makes it more expensive, less trackable and less targeted. It’s really quite a brilliant way to disguise the underlying business. When you do the math, the amount that the deal companies get on a single deal is comparable to print advertising.

The truth is:

Firstly, there has never been a price war between publishing houses and couponing companies and there will never be. There is no need to underbid each other. For sure, print advertising and couponing are both used for advertising, but they are fundamentally different marketing tools. Couponing kills two birds with one stone: It’s good for advertising and sales at the same time.

And even the accusation that “(couponing) takes Internet advertising and makes it more expensive, less trackable and less targeted” is not true. In fact, couponing has the ability to be cost-transparent and performance-based. It’s just a question of the small print: Unlike Groupon we guarantee to our merchants to share nearly half of our revenue, and we charge our commission only when our merchants actually sell a coupon.

Of course Rocky Agrawal isn’t alone. Many people hyperventilate over couponing because they fear a new bubble. They don’t realize that they are responsible for the current situation and what’s next. The economy and especially the stock market are extremely dependent on public mood. So it’s up to us opinion leaders and business men to stay cool and act cautiously and prudently.