How Daily Deals Can Kill Your Business

by Stephanie Taylor Christensen on June 27, 2011
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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.

Stephanie Taylor Christensen is a former financial services marketer who brings more than a decade of experience in marketing and writing to her career as a full-time freelance writer and small business owner.

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