Synopsis — The daily deal is not a ploy to make a ton of money in one shot — it is an attempt, an outreaching, to gain potential repeat customers. Deal services, like Groupon and LivingSocial, can help your company gain exposure and future business by providing merchants with a customer list and announcing discounts on products and services. For the daily deal novice, Matthew Young provides an explanation of the concept and offers advice on how to make daily deals work for your business.
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Exposing The Real Deal: Must-Know Daily Deals Advice
Elevators are often located in busy office buildings. They can be crowded and difficult to maneuver in, but are a helpful shortcut for moving up. The space that daily deals occupy is like that elevator — suffocating and jam-packed — and periodically all the players have to make room for one more occupant. For businesses wanting to explore the daily deal concept, how do you choose your host from among that crowded elevator’s occupants?
For daily deal novices, here’s a brief explanation of the concept. You want to offer a discount on goods and / or services to draw people in the door. An online daily deal site will host the deal and deliver it via email to thousands of subscribers in a particular geographic area. The site will write the content, send the emails – basically, do all the footwork. People purchase the deal, and you receive a percentage of the revenue generated by the deal at specific points throughout the deal’s lifespan. Easy money, right?
Most daily deal companies promise customers, not profits. From their perspective, it’s up to the merchant to become profitable, either by retaining lifetime customers or pricing the deal profitably. However, it remains to be seen how a clear, direct profit structure can be derived from long-term deep discounting. For example, a merchant receiving 33.3% of the revenue generated from a 50%-off deal three times during the life of that deal does not receive 99.9% of the revenue. He receives 33.3% of goods and services already priced half-off.
There is a bright side. Companies like Groupon provide merchants with a customer list to help turn one-time patrons into repeat customers, which is the true long-term goal. Deal services know that directly profiting from daily deals alone is a near impossibility. Nor are they marketing companies. Rather, they offer a tool by which a business can announce discounts on products and services in order to reach potential customers en masse. A daily deal should only be one piece of a larger marketing effort.
The Heavyweights: Groupon And LivingSocial
The daily deal space has two major contenders — Groupon and LivingSocial. According to Yipit in October 2011, the two companies had a combined 73% market share, with Groupon having a 2-to-1 advantage over LivingSocial. Despite their hefty market share, however, Groupon is not infallible, as evidenced by the company’s dropping stock prices since its November IPO. The daily deal industry is built upon the fickle foundation of the deal-hunting consumer who will migrate toward the site and merchant with the best, most relevant deal.
Challengers include Amazon Local (powered by LivingSocial), Google Offers, Foursquare, Travelzoo, Yelp, and many others. As with social media, people use different deal services for different reasons. During the initial boom, many users subscribed to multiple daily deal services, leading to inbox overload. Daily deals have become the new spam. To combat automatic deletion by users weary of the same-old thing, most sites have diversified their offerings in an attempt to differentiate themselves. For example, both Groupon and LivingSocial now offer vacations as a part of their deals, putting them in direct competition with major travel sites.
The Newest Contender: PayPal Enters The Ring
Bloomberg Businessweek reported in mid-December 2011 that PayPal will enter the online daily deal space in 2012. PayPal has a leg up on the competition in its wealth of user data, and will offer deals targeting the buying habits of its approximately 103 million current users.
PayPal will also expand deal deliveries to mobile devices based on a user’s location. Groupon Now and LivingSocial Instant already provide users access to real-time deals in their immediate vicinity throughout the day, as do location check-in services like Foursquare. These offerings begin to fulfill the long-awaited promise of mobile as a channel to reach consumers as they’re on the go and ready to buy.
Another way PayPal may outpace its competitors is to offer consistently better deals for retailers beyond a user’s local sphere of patronage. Reportedly PayPal will be teaming up with major national retailers like Target and Best Buy to offer deals. The specifics are still unknown, but don’t underestimate the power of big brands as market influencers.
5 Dos And Don’ts Of Daily Deals
A maddening number of daily deal outlets exist to choose from when marketing your product or service — just conduct a search for “daily deals” to see for yourself. When vetting a host for your daily deal, it can be difficult to know where to start. Most people default to a well-known company like Groupon, but before you make your choice, prepare for success by keeping a few key items in mind.
1. Don’t put all your eggs in one basket — The whole is more than the sum of its parts, as the saying goes, and I cannot emphasize enough the importance of a well-rounded marketing strategy, where daily deals can play an effective part in encouraging first-time customers. From a business perspective, how much emphasis to place on a daily deal is entirely your decision, but I recommend using a daily deal as just one component of a strategic marketing campaign. Don’t expect the online daily deal industry to be a way to get rich quick. The real success comes after the deal is purchased, when the door of opportunity has been opened.
2. Do build your community of customers — Daily deal hosts provide you with information on who purchased your deal so you can track redemptions. Don’t be afraid to work your new contacts to build new relationships. If you receive an email list of the new customers, think about doing an email marketing campaign to grow your social media communities. Propose that new customers become fans of your business on Facebook, and follow you on Twitter and Google+. Tie this to additional marketing pushes (e.g., “like our page and get 25% off your next purchase”).
Also remember that the best customers could be the ones you already have. Use deals to strengthen your relationship with your current social media following by sharing them on your brand page or tweeting about your deal. Daily deal sites often offer incentives to users to share deals with friends. If current customers share deals with their friends, your audience can grow.
3. Do compare technical requirements — It is important to pay close attention to the delivery methods used by daily deal companies placing discounts in the hands / inboxes / mobile devices of their subscribers. Just about anything tech-related emphasizes mobile devices as a driver for economic success, so it makes sense for a company like PayPal to deliver deals to mobile devices via an application, text, or other mobile feature versus email.
Understand how your target market uses their mobile devices. Consider apps like Google Wallet or PayPal, which not only deliver and store purchased deals, but also let customers pay with mobile devices. In the future, the delivery and use of daily deals will become more streamlined and concise.
4. Don’t forget to do the math — No one likes a sour business deal, and plenty of options exist to ensure your company receives a fair shake of the revenue generated by your deal. Deal companies have varying payment terms. Make sure the numbers add up before you sign your margins away. If you feel your business can’t sustain long-term, deep discounting, then don’t force the issue. For example, you may receive 33% of the total revenue gathered in five days with a deals company that has a large market share, or 80% in three days with a company that has a small fraction of market share. Do what makes financial sense.
5. Do offer a deal that matters — If you decide that you’d like to use daily deals as a marketing tool, figure out what you’d like to offer your new audience and potential customer base. This depends on the kind of business you operate, but no matter your industry, create a deal that is universally relevant and enticing to the customers you are trying to engage. I receive useless deals on a daily basis. What I consider “useless” are offerings that are too narrow ($5 for a $10 foot massage), not tailored to my interests, or things that are too far away.
On Your Way Up: Making Daily Deals Work For Your Business
Daily deals can elevate your business, but there is no single perfect solution among the daily deal choices. It all depends on which host is most right for your business. And all businesses are not equal. What works for a jewelry store won’t necessarily work for a coffee shop, even though both are located on the same street. You wouldn’t approach a marketing strategy with a one-size-fits-all state of mind — daily deals are no different.
Daily deals are there to round out your marketing strategy. Use them to gain traction, increase your reach, and heighten your level of engagement with an audience not normally solicited. Understand that the long-term goals you have in mind for your business may start with a daily deal, but they don’t end with them. That wisdom is only acquired through hard work, which, I can assure you, there is no Groupon for.