Pros and Cons of Daily Deals for Local Businesses

Daily Deals are hot and local businesses like yours all appear to be jumping on the bandwagon.

Before you take the leap, we highly suggest you consider the following Pros and Cons of doing a Daily Deal online for your business.

How Do Daily Deal Sites Work?

Just in case you’re new to the process as a business owner, here’s a brief summary of how the deals work, in general.

1. You go to a daily deal site and submit a request to be “The Deal of the Day.” They don’t have to take you. They want to promote the coolest deals and deep discounts so that their real customers – the buyers – get the best deal and spend more money with them (and not their competitors).
2. If they accept your application, you get to be the deal of one day.
3. You set a limit on how many deals you’ll sell, and what the deal is. You set terms and expiration dates for using the deal. BUT, the deal has to be fabulous or the deal site won’t want you.
4. Most deals are a minimum of 50% off, which shrinks your margins.
5. And it shrinks even more when you realize that if your coupon is $10 for $20 in products or services, you don’t get the $10 either, because the deal site takes a nice chunky cut too.

VERY small margins here, folks.

The Pros of Using a Daily Deal Site

There are definitely a few benefits, but only if you set things up very carefully (see the Cons section.

1. You have a chance to dramatically increase your business visibility.
2. Whether they buy or not, you’ve got no extra out-of-pocket advertising costs.
3. If you can afford the margins on the deal, you’ve got a chance to bring in a lot of customers who are new to your business.

You’ve got to be very careful with setting up your deals if you go this route. Make sure the expiration dates aren’t too far out. You don’t want a flood of pre-paid discount buyers during the Christmas rush. If you’re concerned with a big rush at an otherwise profitable time for you, structure the deal even better but target for them to use at off-peak times.

If you think these benefits will be of real value to your business, be sure to consider these negative aspects of daily deals as well.

The Cons of Using a Daily Deal Site

There are some definite and potentially negative issues involved with setting your business up with a daily deal.

1. According to a survey by Rice University Graduate School this year (2011), only 20% of deal users return to the business for full-price purchases at restaurants, bars, salons, or other retailers. You need to have a great “return-visit” offer in place (like $20 off a $100 purchase) to woo these new customers back again. Repeat exposure can help keep these new and expensively-obtained customers.
2. In the same survey, researchers determined that over 1/3 of the Groupon deals in 150 surveyed businesses were not profitable, with another 1/3 at break-even. Again, if you can capture return visits, that can even itself out if your sales process involves high customer lifetime value.
3. You don’t own the customer details of the Daily Deal site purchasers – THEY DO. You don’t get a customer list or any purchaser details in return for handing over all that money to the deal site. Again, you can overcome this by having these new Deal customers sign up for a loyalty club or other special on-site when they redeem their deal coupon. This is a good idea anyway, but absolutely necessary here.
4. An expiration date in the far future (over 4-6 months for sure) or extremely lax redemption date or time structuring can kill your business. Don’t forget, you’re getting your cut up-front. Nice influx at first, but you’ve got to provide those services months down the road, with no extra cash coming in and the possibility of things costing you more. Or worse yet, they all come in at times when you are normally getting a flood of paying customers, like prime-time on holidays or weekends for restaurants.
5. You’ve got to know your numbers extremely well. Can you really afford to offer that deep a discount? Will your sales process be able to capture repeat customers? Will you manage your cash windfall carefully so you don’t over-extend yourself later trying to meet the redemptions? If you can’t be sure of this, it’s not a very safe bet, no matter how attractive that cash looks.

As you can see, there are ways to “beat the negatives” with a daily deal. But you’ve got to be prepared for those issues. Consider the possible negative buzz if you sell too many deals and 40% of them all appear on the same day, eager to try out your business. Do you have a plan in place to handle the overflow? Will your restaurant have enough food to serve? Will you have enough product in stock? Do you have the staff to provide the necessary great customer service in a rush?

What’s the Bottom Line Here for Your Local Business?

You have the opportunity for a flood of customers, a nice cash influx (if you can budget properly), and great buzz and visibility. But you have to have plans in place so you can deliver on the implicit promise of the daily deal you offer. Plan well, maybe do a little practice run with a smaller deal or a local coupon in the paper, and make sure those numbers really do pan out.

Here are some of the top Daily Deal sites online.

• Woot
• Groupon
• Living Social
• BloomSpot
• Noon Day Deal
• Google Offers (currently testing in Portland, Oregon)

If you’d like to talk to us about Daily Deals or other interesting Internet marketing help, give us a call at (360) 883-0669. We’d be happy to discuss your ideas.

A daily deal can be a wonderful thing for your local business. Or it can be a real killer. Just weigh those pros and cons of daily deals very carefully before you leap.

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