Daily deals exposed : how they really work for businesses
There’s no doubt that daily/group deals are hotting up again, with more companies investing in deals offerings and exploring niche daily deals sites. But with the seemingly good news within daily deals for the industry as a whole, there always seems to be bad news, particularly from smaller vendors, on how investing in a daily deal has caused nothing but headaches and lost revenue. I wanted to take a look at some of the findings and reports that provide context on the daily deals space that show just how well this is(or isn’t) working for brands. The allure of a daily deal always seems compelling enough, with a one-off offer gaining you huge reach in front of new customers, but is it the best business decision you can make?
Driving new customers
One of the most important things to look at of course, is whether the deal you’ve implemented is actually driving repeat business, and the right kind of business, or whether you’ve simply got a load of coupon-heads who will visit you once and then move on to the next best offer. Findings released by emarketer show the potential for daily deals to drive new customers, particularly for smaller businesses. Their U.S. survey showed that 68% of customers who had redeemed a special offer coupon, had actually returned to the business, without using a coupon :
Now while the findings explored by emarketer differ slightly depending on the source, overwhelmingly a positive return rate is shown for businesses that offer daily deals. And this return becomes even more impressive when you drill down into industry specifics. With restaurants for example, 83% of customers that redeemed a special offer coupon, went on to recommend the restaurant to family and friends. This shows the potential for daily deals to keep on giving beyond the initial reach, as word of mouth kicks in and increases the ROI of your initial investment.
Prepare for the crowds
Having spoken to business owners who used daily deals, it seems that many experience a problem of not being ready for the huge increase in customers. The outcome of this is that the important first contact you have with a prospective customer could be negative, and show them that you’re not actually ready for their business. Difficulties such as finding available appointments to redeem your coupon, stock levels, waiting times etc.. can seriously impact the likelihood of driving repeat business and can limit the success of the investment you’ve made through a daily deal offering. An interesting case study from a salon in the U.S. for example, shows the importance of actually being prepared if you’ve run an offer, and how you can encourage repeat business.
Julie Marler of J Bangs salon, has retained an estimated 50% of her daily deals customers by ensuring she’s actually prepared when the offer runs. When she first ran an offer, she ensured she had laid on extra staff and offered overtime to her existing stylists, so she was effectively able to meet the demand. For a new salon, she ensured the first experience someone would have with her business would be a positive one. This extends right through to the experience that she gives customers, all contributing to repeat businesses. This is something that many businesses overlook, with their first experience of a daily deal resulting in frantic staff, frustrated customers who won’t come back, and a costly learning curve.
The ROI of daily deals
Beyond looking at repeat customers, which are more of an unknown, there are some great case studies that show the positives – and negatives – in driving ROI from a daily deals investment.While one way of looking at ROI is to view the investment you’ve made in a daily as a saving in marketing spend due to the high volume of brand awareness you will drive, businesses of course want to know the real ROI that a daily deal can drive. Unfortunately for businesses, there is no single case study, calculation or piece of research that is going to effectively tell you how deals work overall. This is because so much of the deal’s success depends on the individual business, the strength of your offering and your ability to actually serve customers.
By looking at wider industry findings however, we can start to get an understanding of how the daily deals space functions overall, and how it’s impacting businesses. One of the most interesting studies in this respect shows that the numbers aren’t necessarily as impressive as we first thought. Among a survey of over 300 businesses, 55% of companies reported actually having made a profit on their investment. 27% actually lost money and 17.9 % broke even. As a new form of marketing, taking the risk that you have just over a 1 in 2 chance of actually making money on your investment, is far too high for many smaller businesses to make. The survey did uncover some best practice guidelines to follow when running a deal, including not offering more than 25% off face value, placing a cap on the number of vouchers that can be redeemed, and targeting offers based on particular items as opposed to general money off. If you’re running a daily deal for the first time, running it according to these rules can help ensure you drive more of the right kind of business, but can’t guarantee it of course.
The ROI of a daily deal is clearly split into 2 areas : the immediate return and the long-term value. The immediate return value is going to be higher if you consider the other opportunities you have to make money off the original investment. While you can’t control the value of direct voucher redeems, as that’s set at the time of the offer, looking at upselling opportunities for example, could prove hugely valuable. So if you’re a spa running an offer for a half price massage, consider offers around products people can buy when they’re in your establishment, or offering vouchers that can be passed onto friends. This is where smart businesses seek to get as much as possible out of that one customer that’s going into their store, and of course encouraging them into the second circle : that of long-term value.
The industry is growing
Perhaps one of the most telling factors for how daily deals are working for businesses is the fact that the industry just keeps on growing. The number of new sites offering daily deals is extending far beyond the major two of Groupon and Living Social. American Express has recently announced a deals offering in partnership with Facebook through the app ‘Link, Like, Love’. Rather than being coupon-based however, users of the app and AmEx customers will be presented with a dashboard of deals showing them the best offers from their merchants. You then purchase the deal with your card and the deal amount is refunded back onto your account. The AmEx deal offering is also taking the social aspect of daily/group deals further, by presenting the user with deals based on social activity such as content you’ve ‘Liked’ online.
This represents the single biggest opportunity in making daily deals work even harder for brands. Where it once started as a unique social concept, encouraging people to tell their friends about deals and spread awareness, the major group deal sites have now extended to the point where this bears little relevance anymore. As their userbase grows significantly, offers get snapped up and they function more as a straightforward commerce site as opposed to a social phenomenon. Companies like AmEx are showing how to make the daily deals space social again. extending the value beyond coupon redeems and into social word of mouth.
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