Small Businesses Beware Daily-Deals Offers (like Groupon)

The San Francisco Chronicle today reported that Yelp is backing away from a daily-deal service like Groupon.

"Rather than offer more and more deals of inherently declining quality to more and more folks over time, we want to make sure we're only providing good, quality opportunities," Vince Sollitto, vice president of corporate communications, said. "While we think the deals business is a good one, it has never been a core focus of our offering."

Facebook made a similar decision last week, and according to Bloomberg, “the online daily-deals industry revenue dropped 7 percent in July from the month before.”

I’ve said it before, and I’ll say it again: these deals are often bad for small businesses.

Beware the spin.

Beware the Ides of March

Unfortunately, the offer of “valuable new customers guaranteed” and is hard for many small business owners to resist.

I met with a very successful business owner yesterday who is being inundated by promotions from daily-deal marketing companies. The business owner is frustrated. He’s been told by many people in his industry to avoid these offers, but the idea of becoming “the talk of the town,” is still tempting.

Even restaurants, one of the key targets of these daily deal strategies, don’t always benefit. One restaurateur from San Francisco’s Japantown told me that people who responded to his Groupon offer would calculate to the penny the amount of food they could order to take full advantage of the deal. And these people were not big tippers.

What’s the problem?

First of all, all new customers are not your “valuable customers.” The valuable customers Groupon is talking about are Groupon’s target customers. If they seem to match up with your target customers, well then you might consider trying a daily-deal promotion. Otherwise, tread very carefully.

Second, you’ve worked for years to establish your reputation and build your clientele. You’ve carefully planned and defended your price point. I’m not sure if you want to risk alienating your clientele by cutting your prices for brand new customers who don’t care about or honor your brand reputation.

Third, Groupon claims that “we get them to your business, and you bring them back again and again.”

Easier said than done.

The Pareto Principle (the 80/20 rule) holds that a small number of customers accounts for the majority of your income. Do you really want to risk alienating the 20% of your customers who patronize your business year after year through good times and bad for a short-term boost?

That said, daily-deals offers do work for many businesses. Daily deals can help drive traffic to new businesses, they can give struggling businesses a much-needed boost, and they are well-suited for asset-based businesses with lower variable costs, like Mission Cliffs, that have the capacity to manage the traffic and don’t incur extra expenses from a drastic increase in business.

Do the math.

Yipit, a company that “aggregates and recommends the best daily deals in your city” (seriously?), provides a calculator to help businesses determine whether Groupon-like deals are good for them.

Win over your new customers.

There’s an article on TechCrunch with great advice for winning over daily-deal customers if you do decide to take the plunge. The author, Vinicius Vacanti, recommends that you:

  • Surprise and delight-daily deal customers.

  • Offer an incentive for them to come back.

  • Collect their contact information.

  • Discount just the first session.

Remember, daily deals are just another marketing tactic.

The bottom line is that daily-deals specials are just another marketing tactic, and they should be considered in the context of your overall marketing plan.

Contact us today of you need help with your overall marketing plan that may or may not include daily-deals offers. We can help.
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Tuesday, 16 January 2018

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