Small Business Sunday: Could Daily Deal Sites Kill Your Small Business?

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?

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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!

{ 9 comments… add one }

  • RH October 2, 2011, 9:50 pm

    The quick answer is don’t use them. Look if you are a small local business, you should be able to understand how to reach your local area. Its not like an Internet business that might want customers from all over. If you own a restaurant you can run your own special without paying Groupon and having reputation managements needs too.

    These daily deals sites are snake oil for small local businesses at a time when there are enough hurdles to success. Look once you give people 50 % off they will never pay you 100 % after that. They will move to the next business giving 50 % off.

    Look Morgan you probably know your favorite local restaurants, you did not need 50 % off and a Groupon to hear of them, unless they were brand new. So you will use 50 % off and then move to the next restaurant. The consumer needs to budget and get the most they can in this economy, they are never going to pay full price if they don’t have to. Again IMO

    Reply
    • Morgan October 3, 2011, 6:43 am

      Great feedback everyone!

      @RH – you make a really good point. It’s true, I find-out about good restaurants because people recommend the food, not because I can go there once for 50%-off.

      @John – thanks for sharing this article – definitely a hot topic! At the end of the day it is absolutely true, there are no shortcuts to success.

      @BusinessMind – completely agreed – packages are the way to go. Give a deal, but do it across multiple sessions so someone has time to make your business part of their regular routine rather than a one-time good deal.

      Reply
  • John October 3, 2011, 6:15 am

    Interesting article last week in Daily Deal Media titled “Ten Things Businesses Should Know Before Using Groupon” http://www.dailydealmedia.com/ten-things-businesses-435should-know-before-using-groupon/ . They point out some interesting points such as businesses not being able to get emails from Groupon or writing the ad themselves. Daily Deals seems like an easy way to get customers, but in the end there are no shortcuts to success.

    Reply
  • Business Mind October 3, 2011, 6:33 am

    That’s makes sense to me. Rather than taking a huge discount for your product or services. How about implementing the discount into packages. Even the costumer won’t come back, at least you earned fare enough to grow your business.

    Reply
  • Jim October 3, 2011, 7:46 am

    Consumers see heavy discount deals by companies as a negative, a sign they have being overcharging up till then. People who do go for the offers are generally people who want something for nothing and there is no pleasing them. Avoid them at all cost.

    The best approach is to always try to get the full asking price from the customer. At that point sweeten the deal by giving away something ancillary for free.

    Example a well run restaurant won’t discount your meal, they will give you something complimentary, like a liqueur or glass of house wine. This is seen as an acknowledgement of your patronage, yet this simple deed is a positive experience for the customer, with a near negligible effect on the bottom line.

    There is also more work associated with first time cheap deals. If you own a nail salon and do a 60% group deal, be prepared to invest in some pliers and nail files for some hard-time consuming work, where the end user is frowning away while you work thinking that you were are a rip off to begin with if you can discount by so much now.

    Reply
  • RAYY.co October 3, 2011, 4:39 pm

    I get 50% discounts all the time by jumping from one discount to another discount deals offer, because there are so many cheap deals on market…

    So, at the end, I have all the discount deals for a long time from all different company offers. I ends up never pay full price…

    Never go back again when charge 100% full price…instead go to another 50% discount deals…because there are 50% off deals everywhere…why should I go back to the place charging 100% while I can get 50% off deals somewhere ?

    Reply
  • Sport forum October 4, 2011, 4:03 am

    I think the cycle will swing away from the deals/coupon sites over time, may first time business’s that try it find the experience overwhelming and not worth the bother. Eventually the market will sort it’s self out and only the original main players may remain

    Reply
  • Andrea James October 11, 2011, 1:49 am

    One of the key statements in the video above is “the business chose not to set a limit on the number of vouchers sold” and the business owner saying he did not expect that many to be sold. It doesn’t matter how many he expected to be sold, a good business owner can (quite easily in this case given that the salon has fixed resources and a fixed number of hours in the day) work out the maximum capacity.

    He can then be surprised that it reached maximum capacity but at least he’ll have a system in place to manage that maximum.

    Likewise, the Groupon sales rep can easily say to merchant, “wait a second you only have this number of nail stations in your salon, do you realise that it’s going to take you a whole year to fulfil this many vouchers?”.

    It’s not that daily deals do not work, there have been many examples of savvy and responsible business owners who have made the deals work in their favour, but rather a case of both some merchants and the daily deal sites being greedy in the short term without proper consideration of the consequences of their actions.

    It was one thing for these mistakes to be made at the start (like we saw with Posies cafe for instance) but there is very little excuse for these errors now.

    (We run online workshops to help businesses understand daily deals, avoid mistakes and retain customers).

    Reply
  • adam August 3, 2012, 5:20 am

    Daily deals in not a fix-all strategy to start with. That’s why,any small business needs to study and maybe do a little bit of research before deciding. Remember “If you’re not sure where you’re going, you’ll probably end up somewhere else”.

    Reply

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