Many local businesses have started to introduce flash sales in order to encourage consumer spending. However, are these sales really practical and worth the lost income on what would have otherwise been a full sale? This should be an important topic of debate in the commerce industry today. I believe that many business owners consider daily deals to be less risky than just plunking money down for traditional marketing like online display advertising.  But are they considering all the real costs?

Websites like Groupon or Living Social are two of the most important examples of flash sale services in this debate. These websites offer consumers up to fifty percent off a product or service. In turn, the flash sale is intended to drive sales and increase traffic to a brand in hopes of a providing a new satisfied and loyal consumer.

However, when companies subtract lost profits and website fees (as much as a 75% hit on top-line revenue!), does the cost outweigh the benefits? A flash sale can pay off when companies need to liquidate surplus stock or boost traffic during otherwise dead times. The truth is that many customers who claim these deals may not be the typical customer that the business has in mind. These are bargain shoppers who expect big discounts on valuable goods and services. The question is, will they be willing to pay full price as a returning customer?

Companies can also improve their revenues by communicating to customers that they are getting something very valuable in return for their money.  I consider this selling on value, as opposed to selling on price.  Companies need to prove to the consumer that they are the best and worth every penny. They can accomplish this because research shows that in the long run, clients will pay more money for items or services they believe to be worth it.  But selling at a steep discount for even a brief time can undermine the value proposition.

A business should do a thorough internal inspection of its consumer base and finances before deciding to go try a daily deal. This will allow them to do a cost analysis of the potential sale versus potential client increase. Sometimes investing in straightforward advertising (like online display ads!) can actually be a better deal. Daily deals can be exciting, but negative effects can outlast any sales bump.


Originally posted on the iMediaConnection Blog