This is a hot topic and a perfect one to cover here on Small Business Sunday. Daily Deal sites seem to be a new craze, and with each new site comes another opportunity for a business to reach customers. However, and this is a big however, you have to do this carefully so that you don’t end-up giving-away your services. The win for any business that wants to leverage the audience of a daily deals site is creating repeat customers. Sure, offer someone 50%-off your Yoga class could help you sell-out one class, but how many of those people come back? Same for a restaurant. Does getting one dinner at 60%-off going to entice people to come-back and pay full price?
The biggest problem that small businesses have with daily deal sites is cheapening their services and attracting the wrong customers. Yes, making your service more affordable will get someone in the door once, but does that lower their price expectations for the service as a whole? Here’s an example. Suppose you discount a $300 spa therapy down to $150 and a steady stream of customers start coming in. Are you really finding customers that will pay the $300, or only those that would happily pay you $150 but not $300?
One of the most successful ways that small businesses avoid this issue is by offering discounts on bulk orders. Rather than selling one spa service, give a huge discount on six. While this will get you repeat business you have to ask yourself if you can afford to give six services in a row away for 50%-off? If you can there is a reasonable chance you could gain a long-term customer since you have six sessions to impress them.
With a restaurant this is a real challenge. No restaurant will give away six dinners at 50%-off so in most cases they have one shot to really impress their guests. This is probably the small business that has the greatest challenge with participating in daily deal sites. Did you know that daily deals sites have singlehandedly put some small businesses out of business? Did you also know that one third of all daily deal sites have closed down this year? With 530 at the beginning of the year we’re likely to dip below 330 by the end of the year.
A new research study from Boston University and Harvard found that frequent users of daily deals sites were fairly harsh critics. After getting their deal it’s not uncommon for them to hop on Yelp and give the business a bad review. This is where reputation management comes in, is it worth offering the deal to customers if it ends-up lowering your Yelp score? A recent article in the New York Times discusses the overall decline in popularity daily deals sites are having with merchants. While it may seem like daily deals are the next big thing it looks like they might just be the next big fad.
An article in the Washington Post also brings-up this same issue when looked at by big businesses. There is a real fear that businesses will attract customers, but not the right customers, and could put their reputation at risk.
“Part of the hesitation, she said, are concerns that discount offers might tarnish the brand identity or may not reach the desired clientele.” (Washington Post)
This topic comes-up again in a Wall Street Journal article, Study: Daily Deals Hurt Businesses’ Reputations.
So what should you do as a small business?
If you’re planning on using a daily deal site make sure you have thought through exactly what deal you want to offer and how you can create repeat business. It’s not worth filling your business with people who will never come back and, even worse, could give you a bad review on Yelp to boot. Create more interaction with your customer, try to offer deals that gets them coming back and give you the chance to win them over with consistently good service.
Just be careful. Only time will tell if Daily Deals sites revolutionized the way that businesses reached consumers. What do you think? Comment and let your voice be heard!