Those daily deal sites have been getting a lot of buzz lately. There have been quite a few of them pop up lately. Some are locally oriented sites, others are larger ones who can afford a Superbowl ad. Will this be a shopping trend that stays?

Probably not. It is essentially an expensive way to advertise. A business owner will lose a significant amount of revenue (around 75%) on the deal items when the promotion is run. They will also have to deal with a surge in new customers, which may strain even more resources. As with every promotion, there is a cost, but the retailer will need to decide if the cost to acquire a new customer is worth it.

We will also have a problem with saturation of deals sites. Users will only be willing to pay attention to so many emails per day. The rest will get ignored, or eventually be moved into the spam folder.

How they should work: Instead of being a promotional tool, they should leverage the value of volume discounts. Imagine a retailer normally sells a product for $20. His cost is about $12/unit and he normally sells about 10 per week. His supplier sends him a weekly shipment of 10, but has a price break at 50 which would bring the cost down to $8/unit. By using a group purchasing site, he can sell them for $12 (of which he would get to keep $10 with $2 going to the website). He still makes a profit of $2/unit, and he has the opportunity to bring in new customers as a side benefit.

I’ll admit now that I may be wrong about this, but there have been many business models that stopped working once the novelty wears off.