I’ve only ever bought one Groupon in my life: $25 for $50 worth of groceries from Fresh Direct. I never used it, and the deal eventually expired.
But although my initial $25 investment was seamlessly returned to my checking account, I think it speaks to one of the fundamental flaws service-oriented deal sites like Groupon and Living Social are currently facing: For as many deals as they’re sending out every day, there’s a fair number of people not using them.
Part of this problem stem’s from Groupon’s model now hinging on the their massive scale. A recent Business Insider article states that the daily deals site is at a huge loss for the year, with 7,000 employees on their payroll while operating at a net loss of $103 million for the first three months of 2011.
That scale also poses a problem for local businesses as well, who are often ill-equipped staffing-wise to handle giant influxes of foot traffic.
Which is what makes a deals site like Signpost look a little more promising: Its goal is to put community-based deals back in the hands of the community. It’s a less oligarchical way of doing business, and lets each restaurant, spa or cupcake bakery define their own terms of service. For free.
"It started off kind of like a Reddit for local deals, where we would allow any user to upload deals or discounts and people would vote," says founder John Buchanan. The model, however, has since changed significantly.
In the site’s new Merchant Center, businesses can specify the number of customers they want for the deal to take effect, the quantity offered and the dates the services can be redeemed (the video above gives you a pretty good idea of how it works). That offer is then sent out to targeted members of the Signpost community based on their interests. The goal is to cut down on one-off spikes in traffic and build a client base likely to return.
"[Groupon’s] almost an untargeted customer acquisition tool," says Buchanan. "It’s like a hammer: They’re very good at driving in thousands and thousands of people, but it’s not targeted traffic."
Buchanan also says that Signpost’s community-focused model allows them to more effectively drive repeat business than Groupon, which sees only 22% of their customers making repeat visits, according to the Wall Street Journal. Signpost’s customers are twice as likely to return again, although Buchanan admits that most of the coupon buyers at this stage are already patrons.
Still, there’s reason to be optimistic: Signpost has experienced 100% month-to-month growth since the launch of its Merchant Center, and they’ve even secured venture capital money from Spark Capital (who also fund Foursquare, Svpply and others).
Now that the first-wave honeymoon with daily deals sites is tapering off, it’ll be interesting to see if and how Signpost (and others like it) will be able to build sustainable models that are mutually beneficial to local businesses. The service is available nationwide, but is currently concentrated in New York, Boston, Chicago and San Francisco.