The data's in on daily deals, and it's mixed. How do you know if one is right for you?
Welcome to the daily deal backlash to the backlash. First touted as the perfect marketing platform for small business, Groupon, LivingSocial and similar services were then pounded in print and social media for destroying mom-and-pop retailers who couldn't meet demand. Worse yet, alarming statistics emerged that questioned the basic utility of the service: Deal recipients weren't converting to loyal customers, creating a painful net negative for shops that were already struggling.
But that wasn't the end of the story. Today, the daily deal marketplace is experiencing a bit of a rebound. Underperforming deal companies have been thinned from the herd, and the broader business community has gained a better sense of how these services should be leveraged. So ia a daily deal be right for you?
In order make a decision, a business owner must answer three key questions:
1. Am I ready for success?
In the past, too many businesses underestimated response and quickly ran out of inventory, people, time, and, eventually, sanity. Consider the ramifications of a successful offer and remember that businesses with low variable costs of goods sold do the best. Some examples include events, museums, and spas, where adding one additional customer does not add much cost for the business owner. In contrast, consider the danger for a specialty shop offering handcrafted goods, or a professional services operation with limited opportunities to expand its workforce or available hours.
A company I consult with ran a daily deal site for smoked turkeys at Thanksgiving and found itself with over 200 orders to fulfill in less than a week. They got it done, but spent the weekend in a field with borrowed smokers and very little sleep.
2. Am I prepared to offer a superior experience to every coupon holder?
Overwhelmed and understaffed, too many businesses have inadvertently shortchanged coupon-holders and created widespread brand opposition. Consider your offer in light of the experience you hope to create and make sure it is feasible, cost-effective and repeatable -- while maintaining the highest standards of customer service. If you treat the coupon user differently than your standard customer, you run a very high risk of a one-time-only interaction with that customer. If your purpose is to merely lift your sales for the short term, exclusive products, services or offerings that don't require the overhead and expense of a daily deal may be better options.
3. Is there an alternative I can own and oversee myself?
Without a doubt, Groupon delivers large audiences. At the same time, it walks away with 50 percent of the coupon revenue. Have you considered other means of promoting brand awareness, such as a Facebook contest, block party or co-branded event with compatible businesses? Be sure the daily deal is the best of all possible options and not just the easiest.
Big-brand companies like McDonald's and Taco Bell offer limited time products to draw customers to their doorstep. If you are a mom-and-pop--a local restaurant, for example--offering a discount on a meal to a visitor of the local movie theater is a much cheaper and more manageable model.
The daily deal market might seem like an attractive opportunity, but savvy business owners will learn from their competitors' mistakes before jumping on the bandwagon.
ERIC V. HOLTZCLAW is a serial entrepreneur who has founded multiple startup companies, including one of the first profitable Internet enterprises. His last company appeared on the Inc. 5000 list three years in a row. Eric advises clients on the “whys” of business – why customers buy, why teams work and the all-important “entrepreneurial why”. He is the author of Laddering and his weekly radio show, The 'Better You' Project, shines a spotlight on entrepreneurs' individual business journeys and successes. Learn more about Eric at www.ladderingworks.com or e-mail email@example.com. @eholtzclaw