How the 'Low-Fat Cookie' Problem Could Kill Daily Deals


Daily Deals Keyboard

One of the key points in behavioral economics is “You get what you pay for.” To be more specific, when we pay more for an item or service, we value it more. Whether you realize it or not, you do this all the time – in all sorts of tests, people say the higher-priced name-brand headache pills cure their headache better than the generic brand (even though the active ingredient is the exact same in each) or the high-end skin cream makes your skin look better than the chemically-identical drugstore brand.

This quirk in human engineering presents an interesting dilemma for the daily deals onslaught – sure, it’s also ingrained in us to want the most for our money, and to seek ways to get more for less. But how do we counteract those impulses with the subconscious narrative telling our brains: “This thing was deeply discounted, so it won’t work as well/be as enjoyable/provide as much value as a full-priced version.”

If you haven’t heard about how daily deals sales are essentially taking over retail, well, welcome back from media Siberia. In just a few years, Groupon and its biggest competitors have become multi-billion-dollar enterprises, spawning hundreds (maybe thousands) of copycats. Specialization is the new thing – now there’s JDeal for the Jewish community (think kosher eats), Roozt for the socially responsible shopper, featuring companies that focus on sustainability and giving back, not to mention Barking Deals and Meowing Deals for pet owners, and on and on.

The daily deals explosion isn’t without its critics – many have argued that the market is getting oversaturated, the numbers don’t work out well for businesses, advertisers are turned off by the whole thing, and that it’s all a big bubble approaching burst. Still, one aspect that’s oft-overlooked is whether all these potential customers signing up for daily deals really like using (and continuing to use) them in the first place.

We’ve touched on this issue before, on a micro level. But the bigger picture is worth examining as well. If we know that people inherently value something more when they pay full price for it, then we’re creating a retail market in which buyers (and sellers) are set up to stay unsatisfied. For buyers, it’s like the infamous “low fat” cookies craze – each one is less satisfying than its full-fat counterpart, so you wind up eating 3 times as many.

And for sellers, you have a clientele that doesn’t care about the quality of your goods – they’re totally focused on the price, and they’re less satisfied no matter what you offer them. Consider a study conducted by a group of resort properties, which found that the most positive feedback left on comment cards was from guests paying full price. The most critical comment cards came from guests who’d deliberately bought at deeply discounted rates. As Entrepreneur mag put it:

Part of the explanation for that may be that the discounted rates drew a different type of customer. But it also suggests that, in the same way people told they were taking a more expensive drug expected and received better outcomes, guests paying substantially higher rates expected a better experience and molded their assessment to their expectation.

Are there ways around this? Of course. Prepay discounts (buy 10 sessions, pay for just 8), seasonal sales, packages, and more are excellent ways to let people feel like they’re getting a deal. But while doing a Groupon may bring in a flood of cash for a week, don’t expect to win a steady stream of satisfied regular customers. And for those entering the daily deals market, remember, the Snackwell craze eventually came to an end when people realized they really just tasted terrible.

Melissa Lafsky is the Editorial Director of the High Low and the former editor of the Freakonomics blog.


4 Responses to “How the 'Low-Fat Cookie' Problem Could Kill Daily Deals”

  1. Ted Sindzinski

    ” The most critical comment cards came from guests who’d deliberately bought at deeply discounted rates. As Entrepreneur mag put it…”

    This may be the biggest nail in the daily deal coffin I’ve seen to date. No initial return, less than great return rates, feisty customers, can all be written off as problems with how the business goes to market, remarkets or structures their deals. But if this survey results hold up over time, we’re basically suggesting that the most significant benefit — access to new customers and their word of mouth is not there.

    If people buying at a discount are more critical then there’s no sharing, no spread and of course less natural return to the business so why would you use start offering a daily deal?

    Reply

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