Monday, October 17, 2011

Are daily deals hurting your business?

Are daily deals hurting your business? What are some of the options and alternatives?

            Daily deals offer businesses the “opportunity” to reduce their products price by a minimum of 50%; to be sold by an agency that will then take an “advertising” expense of at least 50%.  Ok, do the math, 25% is now the amount of revenue you will produce off your product or service.  The daily deal agency is getting 25% of your products value for utilizing their e-mail database.  I think many businesses are aware of the cost associated with an e-mail software. It is very inexpensive and has a very low rate of exposure.

            Say I have a movie theater with $10 admission and I decide to utilize a daily deal service. My overhead is the same whether I am open for 5 people or 500 people. I decide that I want to increase my weekly, daily, or monthly, traffic by reaching consumers that may not necessarily come otherwise.  Is this going to work?

Argument 1: YES! I am going to reach an audience of individuals that would not try my products or services if it was not for this discounted rate. Out of all the people that use the discount, hopefully my customer service will convert them to more frequent users.

Argument 2: NO! I am devaluing my product to a price point that anyone can take advantage of.  Now, I have cut my profits due to this advertising stunt to obtain customers that are deal hunters and will only use my brand because of the discounted rate.

            Now, the two arguments on daily deals are on the table. What else needs to be considered? What are some of the options?

            A. Is your product considered a premium brand? 
                        If you see yourself as a premium brand do you really want to devalue your product so anyone can be a user. If you’re a company that’s Customer Lifetime Value depends on the longevity of the consumer; you may be wasting resources on something that will not provide much/any return.
            Alternative: Consider increasing your customer interaction. Create value within your “deals” to increase the satisfaction of your current customers and provide them with incentives to bring friends and family. Let your customers be your advertising. Hop on the social media bus and get the word out there and create that conversation with your clients. Don’t use a strangers e-mail database; target the one device that is always on your consumer, their CELL PHONE! Text message marketing is effective because of the 97% open rate of a text. Try a company like TXTWave and give your current customers an incentive to bring others with them. You don’t need to be handing out coupons to attract business.

            B. How much can devaluing your product hurt your business?
                        It can be a significant downfall for businesses. Some businesses can get addicted to daily deals, literally, they can. A business will try one and see this significant increase in traffic for the next week or two and decide to do it again. That one provides the same result and then they do it again. Ok, now have you really increased profitability and longevity or did you just provide a product at a price point that people will only utilize when given the discount. If daily deals get used and abused by a company; eventually consumers will start to think: “Why would I ever pay full price, I’ll just wait for another deal”. CRASH and BURN: that, in no way, is the solution a business can be looking for.

            C. Say I do decide to go with a daily deal because I think I can get non-users in the door and convert them. Which one do I decide to use?

                        There are many different daily deal platforms and it is important to find the one that will benefit your business the best.  The question is what differentiates one channel from another. Typically, the size of the database, and very little else. Until Now, Gannett Media has decided to take this standard and re-create it with a platform called DealChicken. Deal Chicken in Portland, Maine said that their platform is not just a daily deal; it is part of a “Consumer Acquisition Process”. In Maine, DealChicken has partnered up with 107.5 Frank FM and 99.9 the Wolf radio stations in order to help create brand awareness for their clients offerings. Gannett owns Portland’s channel 6 and runs quick segments on these deals throughout the day.  DealChicken is run a little different region to region but they keep the same philosophy of offering brand awareness and not just a reduced price.  If you are going to take a 75% hit to your product then there better be some advertising value and DealChicken provides that.

            Going back to my example of a movie theater owner. If I was to become one of those daily deal addicts than I would start to ruin the value of my product and could possibly lose my profitable customer base. If I kept using daily deals for the sake of increased exposure it could get to the point that I now have to lower my price to $5; law of economics says the market sets the price.  If no one is willing to pay $10 anymore my addiction has killed my business. However, instead, I decide to utilize ONE daily deal site and I decide to take an active role and visualize this as an one time opportunity to create a memorable experience and convert these deal hunters in to long term users. Consider some special treatment to all the DealChicken redemptions such as; some bundles or kickback rewards that entices them to come back again. Now, this one time discount has given you an additional opportunity to get them back without having to pay that 50% advertising fee.  

            In conclusion, use a daily deal as an advertising opportunity to get that traffic and then use your own resources to engage the consumer and condition their emotions. Turn them in to conversions not dollar savers and maintain the value of your business.  

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