How Daily Deals Can Kill Your Business

Once upon a time not so long ago, daily deal sites emerged, paving a whole new potential avenue for small businesses to hit the big time. Sites like Groupon gave small business marketers an opportunity not only to get in front of a huge audience of captive customers, but they could instantly see the success of their promotion in the form of “deal takers.” Sure, you took a bit of a hit on the deep discount. But what was the alternative? Spending thousands on more traditional marketing media like print advertising and mailings, left to forever wonder whether anyone even saw your promotion. For many, the reward outweighed the risk.

Nowadays, you can barely open your inbox without being flooded with emails from a host of sites like Living Social, Eversave, and localized deal imitators. Consumers haven’t yet tired of the deals and are still buying — but what’s the real cost of them for the small businesses using the sites to market?

A recent Rice University study authored by Utpal Dholakia entitled “How Businesses Fare with Daily Deals: A Multi-Site Analysis of Groupon, Living Social, Opentable, Travelzoo, and Buywithme Promotions” explores the future and sustainability of the daily deals industry. One of the most exhaustive studies of its kind to date, its findings indicate that not only does the industry’s long-term potential appear to be less than stellar — but small business advertisers using coupon sites as a crutch will suffer, too. Here’s why.

Now you see us, now you don’t: The study indicates that businesses that used daily deal sites for marketing shifted dollars out of more traditional promotional mediums to fund the online deal. While brand marketing doesn’t always create a dotted line back to profit, it’s important to building and sustaining your business’s image and ultimate longevity. Not only does a daily deal offer fail to promote or build your brand image, it erodes it into a price-driven business model.

You attract customers… but not the ones you want: According to the study, “Only about 20 percent of customers using daily deals return to businesses to buy at full price.”  By contrast, customers acquired through other traditional marketing programs “typically have much higher rates of full-price repurchases.”

Business type matters: Despite what your daily deal site sales rep may tell you, the success of your promotion depends heavily on your industry. The study indicates that businesses in the health, services, and special events space had the best success; more than 70 percent of advertisers made money on the promotion. Restaurants, bars, salons, and spas fared much worse. Only 44 percent of the restaurants surveyed and 54 percent of salons and spas said they realized any profit on their daily deal offer.

About Stephanie Taylor Christensen

Stephanie Taylor Christensen holds a master’s degree in marketing and has 13 years of marketing management experience for Fortune 500 companies and small businesses. She is a regular contributor to sites like ForbesWoman, Real Simple, Mint, Minyanville, and SheKnows, and writes for several private business clients. Her work is frequently syndicated and sourced by Yahoo! Finance, SFGate, TodayShow.com, and The New York Times. She is also a small business owner, having founded WellnessOnLess.com, and Om for Mom Prenatal Yoga in Columbus, Ohio. Connect with her on Twitter @WellnessOnLess.
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6 comments
buysteals
buysteals

A handful of companies are doing the work for you by aggregating all of the Internet deals into one place. Some send targeted deals while others list all of the deals per day on their site.Either way, these free services promise to take the work out of discount hunting and leave you with what you’re truly after: the discounts.

http://www.buysteals.com

marketing online
marketing online

You could certainly see your expertise in the paintings you write. The sector hopes for more passionate writers like you who are not afraid to say how they believe. At all times go after your heart.

Michael
Michael

We rand a deal designed for nice restaurants in Orlando and the response was very positive Orlando Restaurants

Earl Hall
Earl Hall

We recently used a deal service provider to market a concert our Kiwanis group was hosting. Yes, we lost "money" on the deal, but got an additional 74 people in the gate who purchased refreshments. This was a one-time event, good for a deal service provider. I would not recommend it for a professional service depending on repeat business or "quality" clients. Like Hector says, this was an upsell opportunity.

Doug Kaufman
Doug Kaufman

One thing to keep in mind is that these deal services are still in their infancy. We need more time and better metrics to measure performance before we pass final judgement.

Hector Garcia
Hector Garcia

I have several clients using these services and most have a tough time turning a profitfrom these deals, but the trick is being able to upgrade or upsell from these deals... Furthermore create a loyal customer base via great service delivery and product differenciation... Price gaugers will always exist!

James Buckner
James Buckner

“typically have much higher rates of full-price repurchases.” And just what is this typical higher rate to which you refer. You are specific in qouting your critical numbers why not the others?