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Comment RSSHow DealChicken.com Screwed Up
Written by Pace LattinJune 5, 2012 # 9:39 am # Marketing Insights, Specials # 19 Comments
If you are looking to spend millions of dollars in performance marketing, you better start with some idea how the industry works. Last summer Gannet, the enormous newspaper company entered the group buying world with DealChicken.com. Hoping to grow their market share as fast as possible, they enlisted the help of at least a dozen Cost-Per-Action affiliate networks to sign up new users on a performance basis. Unfortunately for them, it seems that they entered the market blindly, clueless how to run a performance based marketing campaign.
Because of that mistake, the company is reeling from the millions of dollars wasted and many companies are not being paid.
DealChicken had wanted to enter this already crowded market, believing they could position themselves differently because they already had enormous local market penetration via their local newspapers. Their press released billed DealChicken as:
… a unique, digital daily deals offering from Gannett that will provide consumers with great local deals and offers from local merchants in more than 50 markets across the U.S. by the end of the year…Deal sales and selection are done locally and are geared specifically toward the interests of local area residents.
They were certain that the site would explode overnight with their enormous reach. Unfortunately, despite good growth, the site at the start of 2012 had anemic growth and only was reaching approximately 400,000 users per month, according to Compete.com. Compared to Groupon’s 16M users, this was close to nothing. It was decided around that time that since Groupon had used performance marketing to grow significantly, that they should try performance marketing and buy users.
In April and May of this year, they started a multi-million dollar campaign with several CPA affiliate networks, paying per user that registered for the site. Impressed with the mass amounts of new users that were registering, they raised the price even more. They informed networks left and right that they were growing their budget and they needed more users.
There was no reason to think anything was wrong, that their plan wasn’t working. Traffic was growing significantly and in May Dealchicken.com had a huge increase of sudden traffic.
As mentioned, they had no idea how the the industry worked, no idea how performance marketing worked, at all. They were registering users en masse, which is what they wanted; but they had no metrics or ability to track those users beyond registrations. In cases like this, the least common denominator always applies: the users that register for anything almost always register, and quality users are targeted less and less.
As they raised the price, and had no oversight or expertise in the marketplace, more and more networks were brokering the offer to even more and more networks. With no knowledge about anything in the industry, their media buyers had no idea that even could happen. Even if they did, without training and insight into how things work in online marketing, especially performance marketing, they were absolutely uneducated in the possible downfalls of this model.
More users would equal more money, right?
Absolutely not. Every campaign must have metrics they follow and be able to quantify the value of each user. By analyzing those users, they can determine which methods of promotion work the best, or even provide filters and methods to ensure the best users are only signed up: those that actually convert, buy products and are genuinely interested in the product.
The buyers at DealChicken.com only saw the enormous growth of traffic from the performance based marketing methods, and had no idea that there was a negative side to their tactic.
In the end you probably guessed what happened: DealChicken had booked millions of dollars of performance-based advertising, and eventually noticed that despite the sign ups, income was not increasing. Many of the users were complete junk and there was no matching revenue to those users.
They immediately canceled all campaigns in the middle of May and stopped paying their bills, ceasing communication with their partners. It was obvious that the people in charge were rushing to make sure that their bosses didn’t notice the huge losses they were about to incur. Instead of honoring the agreements they made, the company is still sitting on millions of dollars of unpaid bills to CPA affiliate networks. It seems that they are trying to negotiate with the companies involved, hoping they can recover some of the money lost by their poor decisions before their investors and Board of Directors learns about the mistake.
DealChicken.com royally screwed up, and because of their failure to hire people who knew the industry, they are taking the easy way out by not paying their bills, or not paying them in full. They want to do what unfortunately to many companies do: which is take a retroactive approach to their advertising plans and fix a problem by ignoring the real issues that created it.
The real issues are simply that despite all the people who claim to be experts in online advertising and marketing, there are very few people who have knowledge and a real skill set to understand the performance marketing game.
The industry is specifically made to produce the MOST results, fast as possible, and if you don’t get that and don’t know how to react to it, you’ll be overwhelmed. Quality control and fraud protection are enormously important to start any campaign. More importantly is great insight into the industry, how it works, and the knowledge to make a campaign actually work for you. If you can bring people into your company who have knowledge on how to make things work, it’s a highly profitable and proven industry that can grow your company enormously. If you are like DealChicken.com and walking around like a… chicken with its head cuff off… you are slated to be slaughtered.
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Written by Pace Lattin
Pace Lattin is one of the top experts in interactive advertising, affiliate marketing. Pace Lattin is known for his dedication to ethics in marketing, and focus on compliance and fraud in the industry, and has written numerous articles for publications from MediaPost, ClickZ, ADOTAS and his own blogs.
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I feel that there is a point in this article that has to be pointed out again, because it is so correct:
Do not have a “retroactive marketing strategy”.
So true! you want to be ahead of the curve, not trying to keep up!
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it could be that the CPA networks themselves pushed garbage traffic. have you seen the ads networks used? I saw ads going through xy7 offering free loubuton shoes. The site doesnt even sell fake shoes let alone real designer ones.
The affiliates and networks deserve to not get paid, maybe next time they will think twice about how they push offers
Observer, I would like to see some sort of proof of your claim as most our traffic was internal media buys. Sounds like another attack on our name….Use your name when you post and show proof to be taken seriously.
Yea, where is your proof? Seems like this article is not very professional, but more of someone who’s personal feelings got hurt and are just trying to start trouble with no professional, factual basis to back up any of these claims.
1) Proof of what? That they ran a bunch of CPA campaigns and they failed? It’s common knowledge what happened, and how they didn’t pay dozens of people until legal suits were threatened.
2) My analysis of why this happened is my professional opinion. Maybe it actually happened because of alien intervention? Who knows?
Feel free to disagree with me, but has nothing to do with my personal feelings, because I have no horse in the race.
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At the end of the day it is really all about quality. Like what you said, a lot of people that signed up are crap, that is why the profits aren’t increasing. If they took time to get quality traffic, they wouldn’t have suffered from this problem now.
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This article goes directly to the reason SmarterChaos was started. To help Advertisers navigate the complicated environment of affiliate and performance marketing.
Most companies need help to enter this space, because more times than not the “performance marketers” are incentivized to take advantage of them. I don’t believe companies like XY7 took advantage of them, I think that an Advertiser has to know how to measure value, how to cap spend, and how to find the good, the bad and the ugly in a campaign. There is always a good part of the apple, just which part is good? Keep the good, throw away the bad. I can tell you Kevin would be happy at XY7 if you told him which part you wanted to keep and which part to throw away!
Apparently that wasn’t the case here.
Great post. May have to give the Gannet analyst a ring. Do you have a rough estimate on amount owed?
Always be tracking.
Thank god I almost got started doing mobile lead generation to this offer and would have probably been caught out with non payment.
Great article Pace and so important to track all leads from the second they register. With our mobile leads we are posting publisher ids to clients server so they can give us feedback on how the leads are backing out on a publisher level so we can vary the CPA and lead volume we offer to each publisher so better quality leads are paid higher and best publishers get what they deserve!
Most Networks that actually give a crap want to be in this for long term when running a campaign. What’s better, to get 20k over the course of several days or to gradually grow the volume and do 10k each or more each month over the course of months? It’s obvious Deal Chicken wanted volume and wanted it quickly and didn’t have any way to measure the incoming data, or identify leads individually. If there was crap traffic it shouldn’t be paid for as long as the the scrub is done properly. In other words was it done within the confines of a signed agreement, are those leads in question clearly identified individually? One of the things lacking in this industry is transparent communication between advertisers and publishers. It takes 2 parties to accomplish this. But in order for an advertiser to provide feedback, they have to be able to identify the leads and the source. Publishers need to be able to act in accordance to an advertiser’s feedback. If advertisers aren’t able to do that, than that is their own fault, and their internal platform shortcomings shouldn’t taken out on a big scrub.
This goes back to my post a few months back. The ‘daily deal industry’ as it is may be exposing consumers to a risk that might call for state regulation that should include bonding to insure customers receive their deals and that client advertisers are paid.
From the post:
Is this possibly an area that the state legislatures needs to look at a bit closer, maybe requiring daily deal sites to maintain a bond or guaranty? I am all for free enterprise but the fast cash in this business model leaves little room for insuring the public trust. Without it, the entire daily deal industry could suffer greatly and or even disappear.
Read more: Commission Explosion http://www.commissionexplosion.com/blog/page/2/#ixzz1x25KNrLn
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“There was no reason to think anything was wrong, that their plan wasn’t working.”
Seriously???
First of all, Gannett is a newspaper company, and newspaper companies simply do not get the Internet, and their Internet teams are often guided by boards of directors or executive teams with newspaper/print backgrounds.
I am willing to bet this is the case with Deal Chicken.
Newspaper companies really do not understand the Internet much less our space, and in the rare cases that they “get it” they take far too long to respond to a trend, invest too much money, and refuse to let go once the 15-minutes are gone.
Last to the party, and last to leave.
Did Gannett miss the bloody Groupon headlines of last year and the embarrassing admissions that continue to spill out since Groupon’s books became public?
Gannett just needed to look at how many companies have looked into the coupon space and completely abandoned their plans in order to know this was a model that not even Google has successfully unlocked.
The merchants control the coupon space, and have figured out how to wrangle the margins to their favor.
The fat margins of two-years ago are history for coupon sites.
Gannett should have known this.
In the end, nobody can blame the Affiliate Marketing industry for promoting a campaign that was being mismanaged by the company that created it.
Gannett should pay up, and learn a hard lesson.
Maybe in doing so, their next entry into the Internet world will be a little more well thought out.
– Richard
Good insight, affiliate marketers need to track the results of EVERY CAMPAIGN and approach things cautiously before they commit to a potentially unsustainable payout.
I am in fact grateful to the owner of this website who has shared this enormous paragraph at at this time.
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Gannett should have just allowed for natural growth to their sites. They tried to speed up as fast as they could to take the number 2 spot from LivingSocial. First of all, with a name like DealChicken, never will happen. If I was a merchant and was interested in running a deal, the first out of the bunch I would call? LivingSocial. DealChicken?! Anyway…they should have allowed for natural growth and allowing the sales reps to take their time to sell quality merchants. Start with 3 great deals a week, and as time moves on, move to 6-7 or more deals a week. They simple got way ahead of themselves in a space they did not truly understand. And now it looks like they are climbing up a mountain because of this failed investment.
I was one of the deal chicken merchant. I suggested how I wanted to do my idea. I was told no it didn’t work. When I did my particular idea on another site like living social who did my idea. Guess what. Deal chicken ended up using what I wanted to do in the first place. When I asked why they decided to use the idea of what I wanted to do in the first place. The answer was. They decide how they wanted to run things. I received a poor lame excuse. Everything they said they don’t do, they now do. But guess what. It was another merchant who could do what I couldn’t do. But I do thank the Living social working with me.
Groupon whom I also tried. Tried to use an authority attitude, basically they want you to charge near nothing and get nothing and they claim they are helping you.
Hey, Deal Chicken Too Bad, can you elaborate? I was thinking about doing some deals and would like to know how handle these guys so I can make a buck.
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Thanks.
i have been trying to reach them for weeks, now ans. machine is full so i can’t even leave a message. the misrepresented an offer to me. what can i do?