You see them every day in your email inbox…

Deeply discounted online offers for local businesses ranging from haircuts, to dental cleaning, massages, dinner, cocktails and just about anything.

Online daily deals are all the rage in local online marketing for businesses.

 

The online daily deal craze got started in 2008 when a 29 year old music major from Northwestern named Andrew Mason had the bright idea to mix “discount coupons” with the power of online “group”/social sharing to develop a “collaborative buying” online platform he called “Groupon.

Since the company launched in 2008, Groupon has become the fastest growing company ever, and its “group couponing” / “collaborative buying” model has spread like wildfire as friends share with each other the daily offers they receive from a wide variety of local businesses.

Groupon’s success has spawned a large number of competitors in the daily deal space, each with its own “twist” on how their discounts work.

Cut to August 2011 and there are now over 400 competitors to Groupon, each with its own twist on offering daily deals. Sites such as LivingSocial.com, GiltCity.com and DailyDeals.com as well as daily deal offerings from other already established players such as Google Offers, Yelp Deals and the recently launched Facebook Deals.

All these daily deal competitors provide new alternatives for businesses wanting to try their hand at offering a deep discount deal offer as an online marketing option with which to attract new customers.

 

How Groupon and daily deals benefit a business… and how they don’t.

The short term goal for businesses running a Groupon or other online daily deal promotion is to get a large number of new “First Time Buyers.” The majority of these businesses running these offers do this even though they are  typically losing money from that first Groupon/daily deal sale.

For example, Groupon will typically require that businesses reduce the price of the product or service sold by roughly 50-60% and then Groupon will take a 50% commission off each sale made during the time of the promotion. By slashing the price so dramatically and having to split the sale with Groupon, the businesses running the offer typically are left with no profit on that sale and in fact, many times they incur a loss.

Other daily deal services may take smaller commissions and require less of a discount but they also will usually have much smaller email databases to send your offer to.

What’s in it for a local business running a Groupon or Daily Deal promotion.

Given that the first sale typically will lose them money, the goal for these businesses issuing a daily deal of this type, is to attract a very large number of new buyers. The hope is that they will be able please these new customer to the point that they will become repeat buyers and that they will be able to profit from them via repeat business over the long run.

In practice though, this is not as easy as it seems…

Although people becoming repeat buyers sometimes happens, many daily deal buyers are people just looking for a “too good to pass deal” – and not to find a new “favorite place” to keep going back to.

So rather than return to buy more products at full price from the original business, these deal buyers just keep waiting for a different online daily deal from someone else to buy. This has become even more prevalent with the huge proliferation of other competing Daily Deal websites.

If you wish to offer a Groupon / Daily Deal type offer – be prepared…

Although many businesses are pleased with the large number of customers they receive from these types of offers, you need to know what to expect and how to best take advantage of all the increased activity. Not every business can handle a 2000% increase in their daily business and not being able to handle such a large influx of customers can ultimately turn into a customer service nightmare.

Businesses who are not ready for this type of promotional action have had more than their share of bad experiences with Groupon and other daily deals.

There is a good example of what to expect along with how to be prepared on this post in Groupon’s official Blog.

 

What I think about  local online daily deal offers:

My professional opinion on Groupon and Daily Deals is that they present an incredible opportunity to quickly reach a very large number of new potential customers and drive awareness of any small business.

That being said, when considering running one of these offers, you need to be fully aware of the impact, both good and bad, that having a huge volume of sales all at once can have on your business… Things such as long waits as you try to deliver all the services you’ve sold (think selling 300 haircuts if you only have 2 stylists), upsetting already established customers who may resent you for undercutting your prices when selling to complete strangers while you are charging them full price, etc.

If you do decide to run a promotion, work with your representative at the company you choose to work with. Most of the main players (Groupon, Living Social, etc.) will have sales agents and valuable instructions on how to best prepare to run a daily deal promotion including best practices, case studies and helpful instructional materials.

Ultimately, choosing to run an online daily deal offer is your choice, just be fully aware that your business must be prepared to handle the traffic before you push the button and send out a “too good to pass up” offer to thousands or millions of potential customers.

Whatever your decision may be – I wish you the best of luck, much success and Rock On!

Have you already run a daily deal offer with a Groupon like company? Tell all of our readers about it!

What was your experience? Any thoughts you can share?


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