Daily deals have proliferated in the last year like dandelions during spring time. I am receiving at least 4-5 deals from one well-known daily deal company alone. Are you feeling left out because you still have not run any daily deal yet? While many businesses and consumers have taken advantage of this latest marketing tactic, I don’t think you need to feel sorry if you have not jumped on this bandwagon. This is because for every business that has seen great success with daily deals, there is another one who can share horror story from his experience. Just look at the experience of one particular business.
Rachel Brown, who runs a small bakery in London, UK, offered a deal with 75 percent discount on a dozen cupcakes last year. She expected about hundred people to sign up. Instead she was inundated with thousands of people willing to take her up on the offer with more still waiting when she cut off the deal at 8,500 customers. Now, this is the business that normally filled about 100 cupcake orders per month. Instead she was faced with making 102,000 cupcakes! She had to hire 25 extra workers incurring $19,500 in extra cost and lost the entire year’s profit in that deal. Just imagine her reaction when a sales person stops by to pitch another daily deal!
To be fair, not all businesses have this type of horrible experience with daily deals. As with many things in life, daily deals offer both benefits and drawbacks. As a business owner, you should know both sides of the coin before making a decision. Below we highlight them in the hope that you will be able to make the right decision.
Benefits
- Daily deals are great at bringing in new customers. Companies such as Groupon and Living Social have large database of potential new customers, who will jump at the great deal your business offers.
- These deals serve as good marketing tool and can build a great brand for your business.
- If done right, they can help you sell slow-moving items that are not selling well in your business. After all, people are getting really good deals on them, aren’t they?
- Customers have to pay ahead of time for the deals. That means you get your money upfront. There is also a side benefit of this arrangement in that inevitably there will be some who forget to use their deals (I know, I have been there), which means extra money in your pocket.
- While many customers will settle for buying only the items included in the deal, there will be many others who will end up buying more items at full price bringing extra sales and profit to you.
- When you look at all the benefits mentioned above, we believe daily deals provide especially good value to new businesses who are trying to get their name out and bring in new customers.
Drawbacks
- While daily deals do bring in new customers many of those customers will come for the deal and never show up for follow-up purchases, which is one of the main reasons you signed up for the deal.
- You end up paying a lot for these deals. Not only do you have to offer a large discount to customers, the companies running the campaign for you will take a sizable cut from the sales, sometimes as high as 50%.
- It can increase your labor and other operational costs significantly, sometimes incurring you heavy losses as you saw in the experience of Rachel Brown earlier.
- It can also become an operational nightmare and result in pissed off customers, which is bound to happen when you have to serve so many customers in a short time.
- Even with all good intentions your business reputation and brand may suffer as a result of these problems.
So, what is the final verdict? Are daily deals good for your business?
Well, It depends. As shown earlier it can help, but also potentially hurt your business. You have to know what you are getting into and plan your deals right.
We will show how you can do this in the next post. In the meantime, if you have any stories to share, good or bad, do let us know in the comments below.
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