Daily Deals | 3 Tips for Small Businesses

After experimenting with Groupon late last year and blogging about Savvy Cellar’s experience, I was immediately inundated with comments and questions from small businesses all over the world.  Since that time, we have seen the “Daily Deal” space grow with such fervor and frothiness that I can’t help but imagine it is heading towards an inevitable meltdown (or at least significant contraction of the numbers of competitors playing in this space).  Simple consumer logic dictates that one can only view and consume so many coupons on a daily basis . . but who knows.

I was recently interviewed by MSN Business on Main writer Barbara Schenck in her article “Daily Deals Propel Coupons to New Heights“.  Barbara pressed me to provide practical advice to small business owners as to how they should approach this emergent form of marketing.  It got me thinking . . are there best practices that small businesses could follow?

Here’s my first stab at some basic practices or helpful tips regarding daily deals and group-buying coupons:

1) Does it fit? Before jumping in, be sure to ask “does the daily deal site customer base align with my business’s ideal customer demographic?”  If no, then don’t go any further.  Further, if your business needs to modify how it operates to make the promotion work, it may be too costly or difficult to pursue.

2) Economics do matter. Don’t let the Daily Deal salespersons convince you otherwise.  Given that each of these daily deal sites are based on the premise that they provide their consumers some sort of discount and that discount will come out of the “hide” of the merchant who signs up, you need to understand the margin implications of the deal on your business.  For example, in our initial experience with Groupon, Savvy Cellar offered a 58 percent discount on wine flights, basically eating up all gross margin. Plus, Groupon’s take was another 40 to 60 percent of what was left.  So the upfront economics of this deal sucked from our perspective, but . . . .

3) Plan to capitalize. Despite the unattractive up-front economics, we felt that the most common pattern of customer consumption at Savvy Cellar would allow us to sell more to the Groupon customers than just the deal.  Experience told us that after sampling a wine flight, most customers then order food, a glass of wine and often will buy bottles to take home.  Furthermore because of the alignment of the Groupon customer and our target demographic, we felt that we could convert some of these one-time Groupon users to regular or repeat customers (who would return in the future without the incentive of a coupon).

A final caveat, well written by Barbara: “Remember that while a successful coupon offer can bring new buyers through your door, it takes a great product, great service and positive interaction to convert a deep discount into business success through add-on sales, repeat business and the development of valuable long-term customers.“