With Groupon and Living Social currently leading the pack, daily deal services have become a multi-billion dollar industry and reinvigorated focus on the local marketplace, all since late 2008. In total, there are over 350 players in the space providing deals, platforms, data, analytics, and aggregation. With the recent additions of such powerhouses as Google, Facebook, AOL, YP.com and Yelp, those numbers only stand to increase.
Despite the recent onslaught of negative articles and merchant horror stories, daily deals can absolutely be valuable tools for small businesses to market their brand, acquire new customers, and move excess inventory or capacity at reasonable and manageable costs. They have already ushered in net new customers to a countless number of small businesses and will undoubtedly lead to long term revenue growth for many as well.As attractive the allure of daily deals may be, like all marketing and advertising models, they are not without their potential pitfalls and hazards for merchants. The answer is not to turn and run as these new market paradigms are certainly going to continue to grow at the expense of traditional models such as direct mail or Yellow Pages, but rather become educated and apply a few basic ideas to help merchants manage these deals for success.
First and foremost, most daily deal sites compel businesses to give very large discounts to their customers, ranging from 50% all the way to 90%.The sites then take as much as 50% of the revenue off of that already discounted product or service, leaving merchants with as little as $25 (or less) to deliver a $100 service. But with 300 guys in the space and hugely discounted services, there is a lot of room left over for merchants to negotiate a better deal for themselves. The easiest place to start is on the rev share, and it is not unreasonable to see a 70%-30% split in favor of the merchant quickly becoming the norm, especially for smaller, more aggressive deal sites. Down the road, as the market grows, merchants will be asked to discount far less than they are today, while still allowing great deals consumers (a 25% discount is still a great deal from many goods and services).
Don’t forget the small stuff. Daily deals can have a lot of moving parts, many of which are negotiable for the informed merchant and can add to the bottom line: Credit Card processing fees can be negotiated, with many deal sites taking all of the charge fees. Cap or limit your deal so you don’t wind up in a situation where you have to over deliver a product or service. Define parameters for delivery so you can fulfill your obligations at the most opportune times over the most opportune length of time. Price your offer in ways that encourage customers to spend additionally. And think about deliver options, maybe offering only 1 coupon per customer is the optimal offer.