The downfall of daily deals

The downfall of daily deals
High quality retailers should be wary about dumping their excess stock on daily deal websites as it could have negative long-term effects for their brands.

New research suggests that daily deal websites are becoming increasingly popular for customers wanting a great discount, but such discounts can have negative repercussions for retailers.  

Auckland University of Technology PhD student Herow (Ashleigh) Ali recently studied why people buy from daily deal websites and the effects listing their brands on these sites has on retailers. 

According to her research high quality retailers who promote their luxury products on these websites risk devaluing their products or brands. This is because large discounts make customers think there is something wrong with the product.

“Seeing high quality retailers on daily deal websites leads the consumers to perceive that retailer or its products as ‘cheap’ and can often be harmful for the future of their business as it may decrease their reputation or brand following,” says Ali. 

This doesn’t mean that high quality retailers should never use these sites; she says that they need to be careful about the size of the discount offered. 

The average discount of 10-20% can be a good way to entice customers to buy products, “anything substantially over that creates a negative image in the buyer’s mind.  If something is 70% off, the perception is there is something wrong with it” says Ali.     

Ali also studied two different consumer types, the bandwagoner and the snob.  Bandwagon consumers conform to the latest trends or what those around them are buying, whereas snobs have a high need for uniqueness. 

“Snobs often spend more, they are drawn in by small quantities of goods that maintain their brand value. 

“This is why high end fashion houses such as Chanel, whose customers tend to fall in the “snob” category never discount their products on deal-based websites, or even on their own website; they strive to maintain their brand as luxurious and exclusive for their customers,” says Ali. 

Luxury brands that have a desire to compete in today’s market must form a close relationship with their customers and that sometimes means avoiding the web at all.  

“High brand shoppers often value a product experience that actually feels luxurious; a virtual purchase does not compare,” says Ali.     

The existence of the snob and bandwagon consumer categories opens up an opportunity for retailers to have tags on their products that show how many people have brought the particular product, updated in real time.

“If you know too many people have brought what you are interested in and you want to be exclusive then you would instantly know and wouldn’t buy it as you'd  want to maintain your uniqueness,” says Ali.  

* The findings indicate that one of the features of daily deal websites being "previous number of purchases" was what influenced purchase intentions.