With the mushrooming and rapid popularity of websites like Groupon, LivingSocial, Google Offers and many others, which lure you to different vendors and companies who are willing to offer you their products and services at significant discounts, sometimes 50% or even higher. These offers can range from a haircut to a cold cut, from a matinee to a martini and so on. I know the idea behind these services is to get consumers introduced to the products and services, with an expectation that they will become regular customer. However with several hundred such offers available everyday in the area where I live in, I am sure I really don’t have to just go to one business everyday, I can just hunt for those offers and save 50% on many things I buy daily, as there is an abundant supply of businesses desperate to attract new customers by offering such deep discounts.
What concerns me is what if eventually this phenomenon becomes an expectation for an average consumer, getting a product or service at 50% less? If so, what impacts it may have on the abilities of these businesses and their employees to offer quality goods and services to the community at large? As no business can realistically survive on 50% revenue, will it mean they will have to reduce the quantity or quality? or may be they will have to make their employees work more or accept lesser pay? as a result the downward cycle can continue infinitely and impact the entire economy.
I remember at the onset of the Great Recession of 2008, Fed Chairman Ben Brenanke once commented that he was more concerned about deflation than inflation. Is this how it will start? If so, what are the possible outcomes for our generation and the generation which is currently in school?