Working with Groupon and "Daily Deal" Sites: Is It Worth It?

by Ellen Lee on January 24, 2011
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Last October, Mulberrys Garment Care in Minneapolis and St. Louis Park, Minn. offered a special deal: $15 for $30 worth of dry cleaning and laundry services. Some 500 customers signed up for the promotion, which was available for just one day through Crowd Cut, one of the many local daily deal sites that have become popular in the past year.

Led by Groupon, the most popular of the bunch, daily deal sites have become an attractive avenue for businesses large and small to reach a large audience and draw new customers.

In just a few years, Groupon has grown into an empire that has attracted more than 50 million subscribers. It’s now worked with more than 60,000 local businesses in 40 countries — and counting. And last month, it reportedly turned down Google’s $6 billion bid to acquire it.

In addition to Groupon, there’s Living Social, Bloomspot, Plum District, and dozens more. Some cater to different kinds of audiences; Plum District, for example, is aimed at moms.

But is working with a daily deal site a good strategy for your business? Here are five tips from small businesses that have tried it out themselves:

1) Run the numbers — Before Scott Clemente, president of Mulberrys Garment Care, signed up for Crowd Cut and Groupon he studied other dry cleaners that had offered similar deals. This helped him run the numbers so he could estimate how many customers and sales to expect.

If you sell more than one product, Corina Kellam, director of Life History Books, which offered a Groupon in December, recommends offering a steep discount on just one product. This encouraged customers to look at other items that her company offered — but at full price — and that they ended up purchasing different packages beyond just the cheap item.

She also made sure to bump as many low-cost add-ons into her package as possible to improve her margin after the discount.

2) Be prepared for a flood of customers — Early on, some small businesses became overwhelmed by the demand from these deals and have had difficulty accommodating all the new customers coming through the door with their coupons in hand.

Clemente says they considered the worst case scenario — if all the customers came in during the first week — and knew they couldn’t handle it. They concluded that as long as it was about 50 percent at most, it would be manageable. Fortunately it was: During the first week after the offer, 4 percent of the coupons were redeemed, with a steady flow in the following weeks.

3) Make it count — Remember that this is your opportunity to show your business off to new customers.

In the daily deal, take advantage of the opportunity to tell your business’ story. Kellam embedded a video that explained her company’s services. Arm the copywriters with as much information as possible so that they can compose a funny, thoughtful writeup about your business.

When new customers come through the door, be sure to welcome them. Remember the social side of sales doesn’t end with Groupon: A number of businesses have been hit with negative reviews on Yelp and other websites after the business treated them poorly when they showed up with a Groupon in hand.

4) Expect that some customers won’t return — Obviously, the goal is to bring in new customers and hope that they like the service so much after their first try that they’ll come back again (and again), coupon or no. But the reality is that some customers just like a good bargain and aren’t willing to pay full price.

Clemente imagined a worst case scenario here, too, that no one would come back. And he got comfortable with that possibility. Luckily that didn’t happen. So far, about one in three have returned, he says.

5) Negotiate the commission — The sites take a cut of the sales, about 20 to 40 percent. But that isn’t set in stone. Kellam says that she negotiated for five months before she signed up for Groupon.

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