It's the era of the deal. The online 'Daily Deals' market has exploded in New Zealand, and it seems there's a new deals website launching every other week. Grab One, Yazoom, Treat Me (by Trade Me), Cudo, GroupOn...
For businesses, these websites seem to promise massive exposure for your brand and products/services, - along with hundreds of new customers. But will running a Daily Deals promotion do more harm to your business than good?
Firstly, you have to discount your product massively. And then, on top of that, you need to pay a commission (somewhere in the region of 30-50%!) on every sale. The reports we are hearing back from our clients are that most promotions runs at a loss. Can your business afford a loss right now?
What's more, the revenue from the sales may not be paid to you straight away - it could be upwards of 4 weeks, even 8 weeks before you see the cash! And while the money doesn't arrive till later, customers can start redeeming their vouchers immediately.
You also need to consider if you have the resources and foundation to manage a sudden influx of customers - especially ones who don't bring cash with them through your door. The market is littered with businesses who have had to offer refunds, who have suffered alot of damage to their reputation and who have even had to close their doors - because they have been simply overwhelmed by the numbers, and so have had to turn people away or severely lower their service standard in order to cope.
One of the touted benefits of a Daily Deal promotion is the amount of exposure your brand will get.
But you must ask yourself: is this the right sort of exposure we really want? If this is the first time many people will have heard of your business and what you offer, is a Daily Deals promotion putting forth the right impression of your brand and its value?
We also believe that the Daily Deals business model undermines industry-wide pricing.
How's this for a red flag - one of the first and most successfull New Zealand Daily Deals websites, 1Day, decided to fold its subsidiary deals website for experiences (1DayOut), because it believes - and told the media so at the time - that discount vouchers don't benefit businesses, and that the business model is flawed.
Let's say you have the ability to weather a loss, and the resources to handle a sudden influx of customers (satisfying every voucher purchased and keeping your standard of service high). Well, then perhaps a Daily Deal promotion could be worth considering. It can certainly be a way to gain new customers that will hopefully buy from you again (at a profit, this time).
But if gaining new customers is the only likely benefit to be drawn from these websites, it must be asked: do businesses make the most of the new asset? Unfortunately - though they capture it during the sale - most Daily Deals websites will not give you the customer data generated from your promotion. It is up to you, then, to ensure you have robust systems in place to capture customer information (such as email addresses) and then use it correctly for follow-up and future sales. Can you convert enough deals-buyers into repeat customers to cover the loss you made initially?
While hundreds of new customers may sound like easy profits on a silver platter, it pays to really do your sums. For many businesses, the numbers don't stack up.