Daily deals are becoming a popular choice with many businesses today but are they really worth it and are they right for your needs? This is one of those very important questions business owners or marketing heads have to ask themselves when it comes to promoting your business and your product or service.

 

Mix Rank Blog has a post on this very topic that brings up some great points. For example, many people have heard that it’s good to get your business on sites like Groupon. Are you considering using Groupon to generate traffic? First, take a look at what it will cost, and what you will actually get out of it.

  • Typical Groupon deal offers customers a 50% discount off normal price
  • Groupon takes their cut of what is left – 50% plus additional fees for credit card charges.
  • Living Social charges 40% of revenues
  • That means you are giving up 75% of your usual revenue in order to obtain that customer.  If your profit margins aren’t at least 75%, you may end up with a loss.

It’s definitely easy to see the attraction to this. The business risks basically nothing and if the promotion doesn’t work, they have not lost any revenue. However, this brings us to the question of whether or not it is truly risk-free. Is anything really completely risk-free?

Let’s take a look at these points:

    • New customers obtained through the daily deal arrive with a much lower price expectation.  Will they see the value in your product or service at full price?
    • The customers who use daily deals may be a different category of shoppers than your normal client base.  They may be people who switch frequently and only go after daily deals.
    • How does this affect the value of your service in the eyes of your existing customers?  Are they going to feel that you have been overcharging them by comparison to the special discount?

Before you tout the risk-free nature of daily deals, you do need to consider these points. While a daily deal is a great way to draw in a new customer, you need to be sure you are giving them something worthwhile at a price point they will continue to pay for, without the discount.

There are some good reasons to try a discount promotion. Let’s explore these:

    • clearing out product before shelf life expires
    • boosting traffic during traditionally low periods
    • if your marginal unit cost is very low
    • subscription services

Acquiring new customers is definitely important for any business, but you should try to acquire high-paying customers, not bargain hunters. What is in it for you in the long run when you get a total customer base that is dependent on a discount? What is your lifetime customer value?  If 1 in 2 Groupon customers becomes a loyal customer, remember that means that it cost twice as much to acquire the loyal one.

Much of this has to do with what value you are positioning for your clients. Do you typically sell your services based on cost? If so, are you able to achieve genuinely lower costs than your competitors?  Beware that reducing prices to acquire customers can trigger a price war, and the only survivors are those who have enough cash and a low cost operation. This will drive the market down, forcing you to your rates low in order to keep customers.

Selling on value means that you communicate why your product or service is better than alternatives for reasons other than price.  This can be a challenge, since you need to have an understanding of why customers prefer you (also referred to as how you are differentiated from your competition).  How do you stand out? How is your service or product different from competitors? Studies have shown that consumers are often willing to pay more when they feel they get a value for that price.

Businesses that don’t typically do well with daily deals include well-established businesses with loyal customers, luxury products, and service-based businesses.  You have to examine the pros and cons and decide for yourself if daily deals are really the best technique for your business.

Do you want to learn more about selling on value vs. daily deals and how you can optimize your marketing efforts? Contact Vantage Local today to see how we can help.