Are Deal of the Day Coupon Sites Good Deals for Small Businesses?Go in with your eyes wide open, and take pains to ensure your staff is adequately prepared.
It all started in 2008 with Groupon. Today, deal-of-the-day marketing may have peaked, but it’s still an option for businesses looking to reach new customers. So how can you know if Groupon, Livingsocial or Scoutmob will make your small business take off or just waste your valuable time and money?
Proponents argue social group discounting can benefit small businesses in a big way. “Their offers get put in front of a mass audience of very savings minded consumers they may not be able to directly reach through local marketing channels,” said Brent Shelton, PR director for FatWallet (a comparison shopping website that allows users to publish deals and rebate offers) and Ebates (a shopping portal that offers coupons and cash back).
On the other hand, small business coach and marketing expert Dan Cricks of Results Marketing tells his clients to proceed with caution. “It has been my experience that deal of the day sites only work for very savvy small business owners. I’ve seen many lose money with the deals, have their businesses hurt and some even put out of business because of it.”
Consider these points before you bite the bullet.
They can help you move excess inventory
If you have excess perishable items or empty appointment slots during certain times of the year, a deal of the day may be just what you need. But, said Cricks, “Thought has to be given to what will happen with those folks once they purchase and not just delivering what was on the deal.”
The math will work best if you can up-sell the customer another product or service — say, a styling product to complement their new haircut. “If you’re able to up-sell a high percentage of those who respond, then the deal may work for your business,” said Cricks.
It will bring in new customers — but will they come back?
According to the Telefónica Global Millennial Survey of more than 12,000 people ages 18 to 29 worldwide, more than 40 percent of millennials in the United States have purchased from daily deal or social group buying sites.
“From my experience, and feedback participation from our users, I can say that the exposure for small businesses providing exclusive offers for our audience is pretty huge,” Shelton said.
But will those customers come back and pay full price next time?
If your deal only brings in customers who are searching for a bargain and not for a quality product or service, it can backfire. “Bringing in price shoppers is very expensive,” said Cricks. “It’s not profitable to have too many one and done customers walking through the doors.”
In a working paper titled “To Groupon or Not to Groupon: The Profitability of Deep Discounts,” Benjamin G. Edelman, associate professor of business administration at Harvard Business School, and two colleagues wrote,”Voucher discounts are likely to be profitable if they predominantly attract new customers who regularly return, paying full price on future visits. But if vouchers provide discounts to many long-time customers, vouchers could sharply reduce profits.”
You may lose money
Many deal-of-the-day companies require you to significantly discount the items you list, often to the tune of 50 percent or more. Combine this with the 50 percent or greater cut the deal company takes, and your business may actually lose money. “Most of the deal-of-the-day offers are sold at below cost, especially after credit card fees and fees by the company offering the deal are deducted, and you have to take into account the labor cost for providing the service or product,” Cricks said.
You may alienate regular customers
If your deal is very popular or if your deal purchasers come in all at once — say, just before your coupon expires — you run the risk of being so crowded or busy that you neglect your usual customers.
Cricks said it’s important to prepare your staff so they are not overwhelmed. “There needs to be a plan in place ahead of time and the staff should be trained so that the deals are leveraged properly. Most small businesses aren’t thinking far enough ahead. They are sold on how much business the deal will bring in quickly,” he said.
Your deal may be matched or beaten by the competition the very next day
If your product or service is popular on Groupon, a customer may be able to keep purchasing deals at different businesses and never need to become a loyal customer of yours.
“A popular deal of the day is massages. In one week you may see offers for the same massage from three different companies competing for the same customer,” Cricks said.
You could tarnish your brand
Many argue discounting hurts the value of your product and can even lead customers to question your honesty as a retailer. If prices can be manipulated, how can a consumer know what price is fair?
Cricks said he tends to agree. “Using deal-of-the-day discounts can hurt the company’s positioning. They can be seen as willing to give big discounts on their regular products, which can make it difficult to charge profitable prices later,” he said.