* Large marketing overhead * Large direct salesforce overhead * Daily deal hunters don't become regular customers * Merchants take a loss on the deals
Merchants take a loss on the deals because Groupon takes a 50% cut after convincing them to reduce prices. Groupon takes a 50% cut partly because they have large "sales costs" in creating each deal.
Direct sales and outbound marketing was initially required because it was a new concept that required educating the market. Now that everyone and their grandma knows about Groupon, I wonder if companies can adopt a new model without such heavy marketing and sales overhead, and try to make the numbers work so that both the merchant and the daily deal company makes a profit on each "deal".
I think the market has established that using daily deals as a "loss leader" for merchants to gain more repeat customers generally does not work because of the clientele the deals attract. But what if the Groupon2.0 business structures the deal such that the deal is offered on a high-margin product that the merchant already carries, takes a smaller cut (say, 20-30%), and offers a "lower margins but higher volume" deal to the merchants?
If savvy merchants evolve such that they proactively seek such companies, or if Groupon2.0 style companies can use low cost electronic marketing methods, something more sustainable may be attainable.