Thinking about trying out one of those daily deals in 2013?
While there are clearly some benefits to turning to local and national daily deal companies, there are also risks.
A successful daily deal promotion requires business owners to determine the purpose of the deal, evaluate the rewards and risks, and prepare for the execution, according to Jeremy Sisk, president of Xperience4Higher, a Durham marketing firm focusing on small businesses. Check out Shop Talk’s recent article on this topic here.
Below are some expanded tips from Sisk on key daily deal decisions, which include:
Choosing a company. If the intent of the deal is brand awareness, turn to the big hitters such as Groupon, LivingSocial and Yelp.
“Typically the cuts are going to be anywhere between thirty and fifty percent of each sale,” with those companies, he said. “When you are constructing a deal for one of those sites, you have to really take into consideration how much it costs you to offer that product or service that you are offering in the deal, and how big of loss that would create if you sold out.”
If a business owner is trying a deal for the first time or if they are interested in a targeted market, some of the smaller, local deal companies may be the way to go.
There are also opportunities with mobile applications, such as Foursquare, where you can put deals out there and it doesn’t cost a business anything when a person redeems it, Sisk said.
Running the numbers to see how the deal will impact the business. If you expect a promotion to make money, establish a profit margin that you are comfortable with before you start negotiating with the daily deal company.
“That way when you go into that room, you know the bottom line price you can offer that deal for,” Sisk said. “Start twenty percent above that and see if the site will take it, and if they won’t, don’t go below the number that is going to make you profitable.”
If you are willing to lose money to raise awareness about the business or a new product, know how much you are willing to spend.
“You really only have five-thousand dollars to play with so you can only sell 100 deals, but they talk you into selling one thousand because it is the next big thing,” Sisk said. “That five-thousand dollar loss actually turns into a fifty thousand dollar loss.”
If you are a new business, a struggling business with some capital, or an established business with a new product, a loss leader may be appropriate.
“If funds are really tight and you do not have enough money to invest into this deal, then do not do a loss leader because it may be the thing that tips you over the edge and puts you out of business,” Sisk said.
Planning for the delivery of the deal. Businesses can include language, such as valid while supplies last, or require an appointment by a certain date. Plan for accommodating the business that will follow the deal, such as a dentist making sure there are available appointments during the length of the deal or a retail store adding extra staff to service the customers.
Look at the highest volume scenarios and assume that they are going to occur over the entire period of the deal.
Businesses that don’t plan effectively risk reducing the quality of their service, Sisk said.
“You may alienate your current customers because there are all these newbies in there, “ he said. “Then you are probably not going to put your best self forward for the people who purchased the deal.”
Motivating customers to return. Motivate deal users to become repeat customers by offering incentives, such as signing them up for a loyalty program or offering them a coupon to motivate them to return.