Lots of conflicting evidence exists around deals sites, with opinions running the gamut from “they’re awesome” to “run far, run fast.” And certainly, judging by what’s happened to Groupon’s stock price since its IPO a few weeks back, the bloom is off the rose. But does that mean that daily deals are DOA? I doubt it. However, instead of making predictions, here’s a framework you can use to make sure daily deals sites are a good deal for you.
The theory behind daily deals sites is rather simple. You negotiate a selling price with a deals aggregator, then split the revenue from that selling price with the aggregator. For instance, you might offer customers $50 worth of merchandise for $25, with that $25 split between you and the daily deals site. In exchange, the aggregator aggressively markets the deal to its subscriber base, driving new customers to your business. While it sounds great in theory, these deals don’t always deliver in practice.
Why?
At least four reasons get in the way of successful deals:
- Cannibalization. The deal reaches existing customers, who end up buying the same things they would have bought from you—only at drastically reduced prices, hurting your margins.
- Displacement. The deal depletes your inventory, preventing higher-paying, loyal shoppers from getting what they want (particularly common among restaurants and hotels, though true in other businesses, too).
- Commoditization. The deal only attracts discount shoppers and hurts your brand in the eyes of regular customers.
- Reputation. The discount shoppers attracted to your deal don’t “feel the love” the same as your regular customers and post poor reviews about your company on Yelp, Facebook, TripAdvisor, Angie’s List, and others, hurting your brand (though, to be fair, Mike Moran had a great piece recently on why you shouldn’t worry about “fake” reviews).
Sounds like a raw deal, doesn’t it?
Well, not exactly.
You see, the problem isn’t necessarily with the deals sites themselves, but with how most businesses work with the sites. So, while the four risks outlined above exist, some easy tactics also allow you to mitigate those risks. Here’s how:
- Have a plan. Deals sites aren’t a sales channel unto themselves. They’re designed to support your existing channels. So, incorporate them into your sales and marketing plans where they make sense. Is a particular deal site talking to a customer group you’re already working with? Then it’s not a good fit. Will they help you tell your story to a new audience? Then take a longer look. A staggering number of deals sites exist out there, many targeting distinct market niches. Look for sites that attract truly different customers and support your overall goals, not just today’s “flavor of the month.”
- Limit the offer. While no one loves a deal with massive strings attached, put some reasonable restrictions in place to protect yourself. Time-limit the deal to to attract customers during soft periods or apply it only to a package of items, helping to clear stock of poor sellers while maintaining pricing integrity for the individual items. Alternately, offer the deal only on specific items where your margin supports the discounting. Or think about directing sales to specific channels, to avoid the displacement issues mentioned above (e.g., restaurants offering deals on take-out, leaving tables free for long-time customers).
- Segment your list. No matter when you offer the deal, or to whom, segment the customers purchasing the deal in your customer database. Then track the lifetime value of those customers relative to your regular customer base. Make sure you’re learning the true value of those customers to your business both for the long and short term.
- Be loyal to loyal customers. Of course, you don’t just have to offer deals through deals sites. Why not offer screaming values to your very best customers as a thank you for their loyalty? If your goal is to increase foot traffic—or site traffic—consider driving that traffic from existing customers instead of questionable newbies. And, as your best customers already like to talk about you, why not give them something to talk about? Let them bring in the new customers for you—customers just like them.
Daily deals sites didn’t invent coupons and discounting. The model’s been around a long time and likely isn’t going away anytime soon. The key is knowing how to use deals to your advantage to accomplish your company’s goals. Otherwise, don’t be surprised that deals sites aren’t a good deal for you.
