Daily Deals -- Two Schools of Thought

by Jessie Burkhardt

Even if you are not familiar with daily deal sites, you have probably at least heard the names Groupon and LivingSocial.

Every site works a little differently, but here is how an idea of how this concept works:

You create a deal / coupon that you would like to offer. These deals usually have to include deep discounts (no ten percent off discounts here).

The deal is offered for a limited time (a day or so) to create a sense of urgency and posted by the daily deal site.

Consumers can purchase that deal from the site -- NOT directly from you. Then the consumer brings the deal to the merchant (you) for redemption.

Many service providers, like nail salons, are trying this type of promotion -- with mixed results. Some people thrive on these deals, while others will never use them again.

Pros and Cons of Daily Deal Sites

On average, daily deal sites are trending a whooping 14 percent retention rate -- far outperforming a traditional coupon (at only a one percent retention rate). Clearly, these coupons are reaching your target market.

However, as mentioned previously, discounts must be substantial to be considered for the site. The daily deal provider also gets a percentage of the sale. That does not leave much for the merchant (you).

"Only 55 percent of businesses reported making any profit off of the promotions, with 27 percent saying that they lost money on the deal and 19 percent reporting breaking even. For many companies, even if they are turning a bit of profit, the drain on resources and time spent administering the promotions are not worth the modest return." 60 Second Marketer

While the deep discounts and fees keep this from being a revenue generating promotion, it can be a great clientele-building tactic. Visits to daily deal web sites are trending up 600 percent with millions of people looking for the right offer in their area. The caveat here is that you need to have systems in place to capitalize on these new contacts. Do you have a database in place so that you can communicate continually to these new contacts on your own?

While beauty service providers reported the lowest percentage on making a profit with daily deal sites (around 44 percent), there are some tactics to employ that can put the odds in your favor.

"First, make the discounts on higher priced items that are more difficult to move. Only 36 percent of discount shoppers spend over the value of the deal, so up selling once you get them in the door is difficult. Instead, discount the high-ticket items to ensure customers spend more.

Additionally, if the deal site allows you, make the discount lower. Discounts closer to 25 percent are much more manageable while still providing enough incentive to get customers in the store.

Finally, cap the number of coupons available for purchase, knowing that many more people will redeem this type of coupon over traditional coupons." 60 Second Marketer

On a final note, remember that consumers who use these sites are normally very socially oriented online. Many of the sites offer forums where customers can rate or review their services. How much are positive customer testimonials worth to you?