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Question: “Charlie, I was wondering if you could give me your opinion on sites like Groupon and Living Social. Are daily deal sites a good idea for small business? Thank you!” – Anne S., Florida

Charlie’s Answer:

Great question, Anne!

As daily deal sites continue to make news and grow in popularity, more small business owners want to know if daily deal sites are a good investment for their business.

And well, the truth is that daily deal sites are a double-edged sword.  Unless they are structured properly, they can produce more harm than good to your business.

For starters, realize that the daily deal customer purchased a coupon for your business based upon the price of the product and, in most cases, not because they have an intention to continue doing business with you in the future.

This type of “one sale” attitude can open the doors for a lower quality customer, poor referrals and no repeat business unless they are properly marketing to and cared for.

Once the daily deal customer redeems the coupon,
it’s now your job to convert them into a repeat purchaser and a lifetime buyer.

Here’s an interesting statistic I found:

According to a survey conducted on June 25, 2012 by Utpal Dholakia, a professor of management at Rice University’s Jones Graduate School of Business, only 20% of deal users become repeat buyers, with higher success rates found among photographers, education services, health and fitness services, tourism-related services, and doctors and dentists, while cleaning services, retailers, restaurants and bars performed less profitably.

Something to think about … (now, of course, with the right marketing, you should be able to increase the stick rate of these customers).

Before you sign up for one of these deals consider the following 4 tips:

  • Make Sure Daily Site Customers Are the Right Customers – many daily deal sites will be able to provide demographic information. Before doing a promotion, make sure the demographic matches your target customer base.
  • Prepare for a New Customer Surge – reports have indicated many new businesses struggle with meeting the needs of a huge influx of new customers seeking to redeem their coupons, putting pressures on the existing businesses infrastructure, operations, and often displeasing existing customers.
  • Track the Results – it’s imperative to understand the impact of the daily deal site on your business. This includes the cost of the promotion, the total customer expenditure, the net profits, and any repeat purchases.
  • Utilize Follow-Up Marketing – in order to get the best response, offer each daily deal customer an incentive to come back and make a repeat purchase, such as an additional coupon, special sale, bundled packages, or preferred customer pricing.

Remember, daily deal sites represent just one of many marketing opportunities available to small business owners. And while this tool is known to be effective for many small businesses, it does not guarantee success in all businesses.

As with all marketing: test small, measure its performance, and look for ways to improve.

Good luck and let me know what you decide and, if you do move forward with a daily deal site, please let us know how you do!

With gratitude,

Charlie

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