In November, Groupon had the most successful initial public offering by a US company since Google,selling 35 million shares at $20 a share. The $700 million IPO indicates just how popular daily deal sites, such as Groupon, have become. The popularity of Groupon is evidenced by the proliferation of other daily deal sites, such as LivingSocial. It seems as though new ones pop up daily. For the consumer, these sites are wonderful. Who doesn’t love getting goods are services for huge discounts?
Impact on Small Businesses
Despite Groupon’s successful IPO, many experts question the sustainability of its business model. The internet is crawling with stories of business who claim Groupon or Living Social deals had a strong adverse effect on their business. Many businesses who felt their experience was successful still report that they would not do it again. While daily deal sites are a source of advertising in that they get your name in front of a lot of people, the pay off is not being seen.
Where does that leave us?
Daily deal sites have not always delivered the repeat customers they promise. Does this mean we throw away the metaphorical baby with the bath water? Many businesses jumped at the chance to use these sites without thinking it through. Daily deal sites have a lot to offer both businesses and consumers, but businesses have to use them the right way and for the right reason.
Considerations/Advice for Small Businesses Considering Using a Daily Deal
1. Set a good price point: If you own a restaurant and the average check size is $20, don’t do a $20 voucher, do it for $10, then you will still make money off the extra ten dollars. You want customers to spend above the amount for the voucher when they come in.
2. Consider your profit margins: If there is a high mark up on the price of your good or service, this is perfect for you. Customers will think they are getting a great deal and you will still make money. However if your mark up is relatively low, make sure you are prepared for the hit. If you sell a $10 voucher and the daily deal company takes its typical 50%, you will only be getting $2.50 for the $10 worth of goods and services.
3. Negotiate the deal: This is your deal. You may be able to negotiate the percentage the company takes of the voucher price. If you don’t like the deal one site is giving you, check out another.
4. Set appropriate limits: Carefully think about the limit you want to set on the number of vouchers sold and also on the number of vouchers each person can purchase. If someone wants to buy ten vouchers, they were probably going to come in anyhow. The purpose of the deal is to get new people in the door.
5. Do people need incentives to try you out? Is there something about your business that causes people to hesitate? Once they are in your door, are they apt to return? If yes, go for it! A great deal can give people the push they need to try you out even though you may have a barrier such as poor curb appeal.
6. Regulars may be displaced: Keep in mind the impact this new influx of business may have on regulars, on whom you may depend. Some regulars get upset that others are paying less than they are for the same service. Some regulars may actually purchase the deal, leading to them spending less on something they would buy anyway.
7. Utilize the feedback tool: You may gain useful insight into the experience of your customers.
8. Focus on an underutilized services: Choose a time when business is typically slower than normal. You can also choose a specific product or service on which to run your deal. You can do this to highlight it and put your best foot forward with new customers, or to boost sales in a product that is slumping (or you may want to unload).
9. Prepare for the rush: You will likely have two rushes, one right after the deal comes out and another right before it expires. Staff up, if you need to. Also, keep in mind that 10 – 15% will typically go unredeemed.
Daily deal sites can be a great way to boost your business, just make sure you know what you understand all of the possible effects before you invest your time and effort.
Have you used a daily deal as a customer or small business? Share your experience in the comments!