Over the last few years, daily deal sites such as Groupon and Living Social have become all the rage. From the customer’s perspective, who would want to pass up an opportunity to get something at a 50-90% discount? All have been wildly successful, and one would think that the business model would be perfect for the small business owner who is looking to grow their business through grassroot marketing strategies? On the outside, this looks like a win-win situation – no (or minimal) upfront costs, and you only pay if your deal goes through. But if you are not careful, you could wind up losing money and not gaining the repeat customer business that you had hoped.
Recently, I read an article about a bakery in London that offered a 75% discount on a dozen cupcakes through Groupon. The offer was wildly successful, with 8,500 people signing up. That meant that her small staff had to make over 102,000 cupcakes in a relatively short time. Instead of making money on the offer, she actually lost $3 per batch because she needed to hire an additional 25 temporary employees to help. Ultimately, she lost $20,000 because of the offer, wiping out her profits for the entire year.
While this may be an extreme case, there are some simple questions you might want to consider before jumping on the daily deal bandwagon:
What is your objective? The biggest question you want to ask is what are you looking to get out of the offer? Are you looking to gain exposure for your business? Are you hoping this is a way to build a loyal customer base? Be crystal clear as to your expectations for offering the deal. That way, you will be able to evaluate whether or not your offer was a success.
What is your break-even point? Most of these sites require that you offer a 50-90% discount off your products and services. When calculating your discount, don’t forget that the daily deal provider will ultimately get 50% of whatever you sell. Making sure that you account for their cut could be the difference between making a profit, breaking even, and losing money on the deal.
Also, particularly if you are providing a service, make sure that you are able to cover the costs associated with providing that service. Remember that the bakery mentioned above ultimately lost because they needed to hire additional staff to complete the orders.
What is the plan to follow up with these new customers? Make sure that you have some plan in place to continue marketing to these new customers. Chances are, many of them are just shopping for a deal, and will take the low-price leader unless there is some compelling reason to become loyal to one particular business. Find a way to make that YOUR business.
Done properly, the daily deal can be a great idea for promoting your business through grassroot marketing. Just remember that the daily deal is not the ultimate opportunity to make your business great. It is just one tool in your grassroot marketing toolkit.
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