If you’re a local small or medium business trying to increase your marketing and local visibility of course you’ve heard by now all of the hype about daily deal sites and group buying promotions. How DO you properly evaluate the benefits or drawbacks of a daily deal site? Should your business run a daily deal in your local area? Being that daily deal sites are a more recent digital media trend hitting the internet, there’s many arguments occurring about both sides of the fence here. Are daily deal sites a great way to promote your local business and attract new loyal customers, or will it open up the flood gates to coupon clipping bargain shoppers that will starve your business of its profits? Obviously not EVERY business is the same as the next, so what makes sense for one business might not make sense for the next.
At Deal Current, we pride ourselves in the research we’ve done and continue to do with this fast growing market. We’ve interviewed several hundred local businesses (some that completed a daily deal program – others that were interested in getting involved). In that research we found that there needs to be an educational course for businesses on the true value of running a promotional sale on a daily deal website. Local business owners should ask a few questions first before diving into the group buying pond.
1. Understand your demographics: Daily deal programs are just like any other advertising opportunity your business has a chance to leverage. Before running a daily deal, understand the demographics of the daily deal’s viewers. If your business is a tanning salon and the daily deal site you’re considering on working with mainly has an older demographic – chances are this might not be the best advertising option. Many daily deal sites attract the 18-34 year old female crowd, but each site will differ from the next, so ask them for their specific demographics.
2. Know the numbers: Every daily deal company has different methods and levels to their overall consumer reach. Evaluate each daily deal company you work with just like you would with any other advertising option. Say you have a budget of $1000 and you’re interested in placing ads in a local newspaper in your area. Wouldn’t you request a media kit from that newspaper to see the CPM cost, who’s reading their newspapers and how many people are reading the paper? Of course you would. Treat daily deal sites just like that.
3. Think about your offer: Try to not get bought into the hype of the daily deal sales person that you’re speaking with in terms of the deal you should offer. Understand that most daily deal companies will take up to 60% (even 70% in some cases) commission off the top of your sales. So if you offer a deal that’s $15 gets you $45 worth of food at your restaurant be aware that you’ll only see roughly $5-$7 – yet you’re giving away $45 worth. Yes, about 20-30% will probably never redeem their voucher, but understand the economics involved. Now there is something to say about the deal that you do offer. There is a DIRECT correlation between the deal you offer and the amount of voucher sales…higher % discounts yield higher sales results. Think about your offer and run the numbers internally first before signing a contract locking you into what could be financially detrimental to your business.
4. Prepare your staff: If you’ve research daily deals at all, you’ve probably read that angry blog post about the local business that sold 1500 30 minute spa appointments, when they can only fit 40 appointments per week. This is a problem. To avoid that, ask if you can put a limit or a maximum on your daily deal. The next step here is to prepare your staff. Eager customers will be flooding your business within a few business days, so preparation is key here. Hang up a Memo in your employee break-room explaining the deal details. Schedule a quick meeting or a call with your employees to inform them about the promotion, the amount of deals that the business sold and what to expect.
These are just a few details to get you started on your daily deal quest. Realize that most businesses (about 86% according to reports) say that they would do a daily deal promotion again if they had the opportunity. Understanding all of the details beforehand will ensure a successful promotional campaign. Good luck!
Read a very interesting and well written article today that attacks an interesting question. The internet makes public any offer any company gives to any individual or group instantly, and you can’t take it back. The internet has allowed consumers to quickly search for and identify a company’s floor or break-even price on a product or service. I just bought a $75 massage for $18, and I know the spa only gets $9. Is that business doing ok? If they are, I’m defiantly calling to negotiate an employee day there, and I’m gonna get a hell of a deal when I do it. I’m a deal nut, so from a business perspective its interesting to hear more about how small and large businesses see the deal space in all forms (coupons, specials, daily deals, etc).
Read on at MIT Sloan, “The Price Isn’t Right.”
The article does a great job of explaining how to recapture your power over pricing. Implement these steps and keep your customers coming back and paying full price, after your daily deal has generated a new audience. Don’t be bothered by a 20% retention rate on your daily deal audience. If you sell 100 deals, and get 20 new repeat customers, that’s can have a big affect on your business.
Daily deal sites were once thought to be another fad to hit the internet. Some still feel that way about trendy sites like Groupon, LivingSocial, and BuyWithMe. One thing that cannot be ignored however is the fact that digital media is changing the way consumers shop online. It’s easier to get a great deal or discount now than it ever has been. Personally, I’m a huge fan of the social group buying concepts. I’ve seen it work for businesses trying to increase awareness for their restaurant and I’ve seen friends flock to a great 60% deal for something fun they’ve never done before. What has been interesting is seeing how the daily deal market has exploded over the past 6-8 months.
The market has been truly flooded with daily deal sites in every niche and market across the country. If your city doesn’t have a daily deal site, you soon will. Many of these sites started with the hopes and dreams of being as large as Groupon someday. What they’re soon finding out though is that it’s not like the ‘Field of Dreams’ in the daily deal group buying world. If you build it, they will not always come. Fly by the night companies trying to create their own brand and identity as a hyper-local daily deal provider are soon realizing that it’s difficult creating a cult-like following from scratch.
The operational costs to run a daily deal site are minimal but there does come a time where these new daily deal sites are realizing that it’s much more difficult than it looks, and a once unattractive acquisition offering now becomes their main option for survival or exit strategy. Recently there has been significant acquisition activity in the daily deal space. The common trend you will see in these acquisitions are, in most part, is a strategic play for market share by the purchase of group buying email lists and existing consumer data.
This acquisition makes sense because Sugar Inc. is a lifestyle, entertainment, fashion and shopping network for trendsetting women and FreshGuide.com is an online women-focused city guide that provides access to exclusive daily offers. Their challenge will be with the local penetration it plans to get. I assume their website traffic is significant, but I’d be interested to find out exactly where the majority of those viewers reside. I’d estimate that it would be in a trendy city like New York or Los Angeles. I doubt they’ll have success in local areas in middle America. National brands adopting a hyper-local approach will learn just how hard it truly is to complete.
Tippr’s acquisition of FanForce is somewhat different than Sugar/FreshGuide in the sense that Tippr is positioning themselves as not only a daily deal site for consumers, but also a platform for companies to host and run their own daily deals. One would think that powering your own daily deal sites and offering the ability for others to build their own platforms would cannibalize the market. Strategically they probably won’t have dueling daily deals in one market, but you never know.