Daily Deal Sites: Should Your Small Business be Using Them?

Daily Deal Sites

I’m sure you’ve heard of Groupon – undoubtedly one of the most famous and popular daily deal  sites (sometimes referred to as Group Buying Sites or Flash Sales) in the world. If you’re anything like me, your inbox is probably full of their tempting offers!

But do you know how these group buying sites work? Have you been tempted to promote your products or services through one if these sites?

If the answer is yes, then you’re going to want to read on as I explain what Daily Deal sites are and discuss some of the pros and cons of using them to market your products and services.

How do Daily Deal Sites Work?

They aren’t called group buying sites for nothing… basically, each deal promoted through these sites has a preset minimum amount of sales as well as an established maximum, all within a fixed time period – it could be 24 hours or could be 3 days.

Sites like Groupon have extensive email lists full of subscribers eagerly awaiting their next irresistible deal. When a deal goes live on their website these subscribers are sent the offer. Customers purchase the offer on the deal of the day website which acts as intermediary between customer and supplier.

Once the minimum number of deals have been sold via the website, customers’ credit cards are charged and the deal is delivered as an electronic voucher or coupon which can be redeemed directly from the supplier. These vouchers normally have specific expiration dates and must be redeemed before said date – most allow buyers a six month window in which to use their coupon; however, I’d encourage you to negotiate this down if possible.

If the pre-established minimum number of sales is not met, the deal gets removed and no one gets to buy it. On the other hand, if the deal is popular and a certain number of people sign up, then it becomes available to all. This is a great concept as it helps reduce the risk for sellers, who can treat the coupons as quantity discounts.

Most Daily Deal Websites will require you to offer discounts of between 30% and 80% on normal retail prices of your products or services. That’s not all: They’ll also charge you a hefty commission for each sale made which can range between 20% and 50%! Doesn’t look so interesting anymore does it? Bear with me, it’s not all doom and gloom :-)

Rather than a means of generating outright profit, it’s probably best to look at the use of these sites as a new marketing tool which undoubtedly allows you access to hundreds of thousands of users who could be potential clients.

The main players in the market are Groupon and Livingsocial. Both companies have been buying up competitors and increasing their market share of the lucrative daily deals market place.

Groupon and Livingsocial tend to sell all sorts of products and services; however, we’re starting to see more specific niche daily deals sites which focus on particular industries and customer segments. TravelZoo, which offers – you guessed it – travel related discounts and offers and Opentable which specializes in restaurants would be two clear examples. All these sites have different terms and conditions so it’s worth studying each one to determine the best fit for your small business.

Bear in mind that Daily Deal Sites are looking for products and services which offer quality and to some degree, exclusiveness – they won’t take on any old product or service, you have to offer something unique and attractive to their client base.

These sites are not ideal for all businesses. If you offer a service, you probably have better margins to play with and can probably make these deals work for you. If you sell physical products, you need to be buying directly from the manufacturer to achieve margins that will make the operation worth your while; if not, the commissions these sites charge will erode any profit margin you might obtain.

Let’s look at some of the Pros and Cons of using Daily Deal Sites to promote your small business:

The Pros

  • One advantage of using Daily Deal Sites is that you only pay for what you sell, there are no upfront costs to participate.
  • The benefit for businesses is exposure and brand awareness for their product or service to a large number of customers in a short period of time; they are basically handed clients on a platter.
  • There is evidence of significant exposure value (increase in sales because of exposure received) from running a one-day deal.
  • Businesses can capitalize on the long-term lifetime value of new repeat customers.

The Cons

  • If you consider the large discounts and steep commissions to the deal of the day sites there is often little scope to reach profitability.
  • Another negative effect on profitability is the type of consumers attracted by daily deals. Often, those who purchase a daily deal are “price-sensitive deal-seekers” who are less apt to return to the business in the future to buy at full price.
  • If a deal is successful, a small business could be swamped by too many customers and be unable to handle the increase in demand; this could result in poor service levels and a shortage of product which would ultimately lead to dissatisfied customers who wont be coming back!
  • It’s the daily deals website which retains customer data (emails) rather than the company offering the deal.

Most Popular Products and Services Promoted in Daily Deals

You’ll find all sorts of great offers on daily deal websites and flash sales; however, the following list highlights some of the most popular products and services which get promoted on these sites.

  • Travel (Hotel stays, holidays, etc)
  • Education Services
  • Health and Fitness
  • Medical Services
  • Auto and Vehicle Services
  • Retail (Clothing, furniture, jewellery, complements, gifts, etc)
  • Beauty and Spa
  • Restaurant and Bars
  • Special Events

Key Takeaways & Recommendations

It’s important to bear in mind that many of the clients who purchase your offer on sites like Groupon are simply bargain hunters and wont buy from you again… it’ll be hard to make a profit if  all your clients are like this!

Use the fact that you’ve got them into your business as an opportunity to sell them complimentary products of services. For example, a Spa that offers a spa circuit at 50% discount can make up margins by selling beauty products, creams and other related wellness products to clients who use a Groupon offer.

Ensuring that your business benefits from using daily deal sites is largely dependent on you. Some of the original clients you attracted with your offer will come back to spend more money in your business but in order for this to happen, you have to ensure that their experience with your company is exceptional: Top class service, good quality products, value for money… these are all things you need to be striving for! Also make sure you get the customers email address so that you can send them offers and updates about your products or services, without having to rely on the third party daily deal sites ;-)

Many Daily Deal sites have fixed commissions for all products and services they promote; however, there are some that are reasonably flexible and allow you to negotiate the commission of each offer you promote through them. Obviously, if you have a unique product or service that a site like Groupon would be interested in promoting, you’ll have more bargaining power.

You’ve now got enough information to make a decision on whether or not Daily Deals Websites such as Groupon are an option for promoting your business and increasing sales and profits. Just make sure you take the time to study the terms and negotiate favourable conditions.

Are you using Daily Deal and Group Buying sites to promote your business? Have you had any success with this? Do you think promoting your products and services on sites like Groupon ultimately leads to increased profits for your business? Please let us know your thoughts in the comments below.

 

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