There’s GrabOne, TreatMe, Groupon and a plethora of other one day deals sites that offer local services. Consumers sign up and get a daily email offering a sharp discount on a local service.
Consumers love the deals. Big discounts on treats and services, who would say no?
It’s no doubt profitable for the deal sites themselves. Groupon turned down an offer of US$6 billon from Google.
But what about the businesses themselves, is it working out for them?
Profit And Loss
The idea is that the business gets a flood of new clients. Are these clients worth the cost of acquiring them?
Generally the new clients are coming in at a loss to the business, 50% discounts and more are common.
The idea of a loss leader (where you take a loss to acquire a customer and the make the profit on backend sales) is not new, and many businesses have had big success with it. But how well does the strategy translate to service businesses, and to yours especially?
Will buyers who came in at half price decide that your service is worth double what they initially paid (or will you be established in their mind as the cheap option)?
Clients have the chance to sample your offerings and hopefully like you and establish a relationship. Will that be enough to get them coming back?
How Much Does It Cost?
The main factor of all these deals is a big discount. On top of that, the deal site will take their rather substantial cut, sometime 50%. This could leave you with around just one quarter of your normal price.
It’s important to have a good handle on the numbers. How much will it cost you to fulfil the deal? Add to this the opportunity cost. What resources will you be using on the deal that could be used to attract and serve full paying clients?
How does the cost of other lead generation methods compare to the daily deal?
What kind of prospects do the deal sites attract?
Deal sites are likely to attract two major segments of the market. One is favourable, the other is not.
One group of the market is what Seth Godin calls ‘sneezers.’ People who actively adopt new services and are influential enough to spread the word to their social circle. These people are exactly who you do want to attract. You can afford a higher marketing cost to reach these people.
The other market segment is bargain hunters. These are people who are constantly looking for the best deal. They price shop for the lowest price and are known to be the least loyal clients. If they come to you based on price they’ll leave you based on price. If these kinds of buyers come from a daily deal it’s very likely they’ll never return after taking advantage of you.
Your Business Is Unique
There’s certainly not going to be one standard answer for every business. Like all marketing you’ll have to analyse this one for yourself.
My best guess is that a daily deal can work well for a new or up and coming business that needs exposure. On the other hand a well established business with good lead generation systems can probably do better by spending their resources in other areas.
It could be a win or a loss. Which will it be for you?