Avoiding Daily Deal Mistakes
A trend over the last couple of years has been to promote business through daily deals site such as Groupon, Living Social and KGB deals. These sites offer a tantalizing proposition, that they will find new customers for you by offering an amazing deal to their list of subscribers. If you are considering getting onto this trend, there are a few things you should consider as there are some downsides to this type of marketing.
One huge downside of doing daily deals is that you are expected to discount your products and services by around 65-70 percent and on top of this, they take up to 50 percent commission on any sales you make. Once you take out your costs and include any taxes due, most deals could never be described as profitable -- in fact many businesses going down this route can find they are out of pocket.
The advice is to carefully work out your costs and calculate whether it is worth you doing a Daily Deal -- for many businesses, it is simply not worth it if you are looking to make a profit. However, if your motivation is to get people through the door or get traffic to your website and you are prepared to see the deal as a loss leader, then you could be onto a winner.
Delays in getting payments
Another huge downside of doing daily deals is that you will not get paid straight away. Living Social and KGB deals will pay you either in installments over a number of weeks, or in a lump sum but not for several weeks after your deal has run. Groupon expect you to redeem voucher codes, which can be extremely laborious and you still have to wait to make your money.
If you have to buy stock in advance to cover possible sales, then you are tying up a large amount of money that could be utilized elsewhere in your business. Also consider that if you over-buy, or over-produce your stock and sales are poor on the day of the deal, then you could be left with a lot of unsold stock. You won't know how many sales you will get until the day of the deal and it is difficult to predict.
Unless you have a downloadable product which is easily accessed by large numbers of people without stressing your ability to deliver, you could run into problems. One of the downsides of having a successful deal is that it could stress your capacity. Consider whether you could deliver in large numbers, or whether you should limit the deal to a number you know you could cope with.
Attracting the wrong customers
The type of people who use Daily Deal sites are by definition looking for a bargain -- the whole concept is based on discount selling in large quantities, just like job lot discounters. Because of this, be careful not to make the mistake of assuming that customers who take up your deal are going to become long-term loyal customers, or buy anything else you have to offer -- the likelihood is that they will be of looking at the next great deal. A study conducted by Rice University found that only 20 percent of Daily Deal customers returned to make a full price purchase. You have to calculate this into your plan, if you are hoping to turn Deal customers into profitable customers later on.
Be prepared for hard work
If your Daily Deal turns out to be a huge success be prepared for a lot of hard work. Many companies get carried away with the idea of selling a lot of products on a particular day, but the reality is that your phones will be ringing off the hook and your business will be hectically busy dealing with extremely low profit margin business. Some businesses have even gone bust because the only business they've managed to attract has been heavily discounted with virtually no profit margin.
So, consider doing a Daily Deal only when you have factored in all the possible problems. It can be worthwhile and it’s a good way to get your name in front of thousands of potential customers…