One of the biggest growth areas in online advertising are the Daily Deals sites. You’re probably familiar with some of them – Living Social, Groupon, Spreet, OO.com – the list goes on.
Maybe you’ve bought something from them? I know we have.
So why do they work and if you’re thinking of using one to promote your products or services, what are some of the traps you could fall into…
Let’s start with why they work.
In effect, the daily deals are interruptive advertising that you’ve opted into receiving.
The subject lines immediately tell you what’s on offer – so it’s easy to decide whether to open the email or delete it.
And if it’s something that looks interesting, you’re likely to check it out and go, “Wouldn’t mind that – and it’s at a really good price – so why not!”. After all, let’s face it, we all love a deal.
So from a consumer’s point of view – great value.
But if you’re the merchant, is it such a fantastic deal for you?
Before we analyse that, let’s go into how these deals work.
Essentially you provide a massive discount on your normal retail price. For example we recently got a 2 night stay at a Bed & Breakfast for $199. List price was $505 – so we ostensibly saved $300.
The merchant pays half the amount to the Daily Deal provider – so in our case they ended up with around $100.
So why would they give away 2 nights for a total of $100?
Well, the main reason is they sell unused space. They have fixed costs regardless of whether anyone stays or not so figure they’d rather have a booking which recoups some money than none at all. And if no one books, they don’t owe the daily deal site anything.
However, the vast majority of deals that come through are from restaurants, massage therapists, beauty salons and even photography. Just had a “pet photography” deal come in this morning!
If you’re in that sort of business, what should you know before going down this path?
First, realise you’re “buying” or “bribing” a customer to come in via a low priced deal and that you’re likely to either lose money or just break even.
Therefore you must think in terms of immediate up-sells and multiple transactions over time to recoup your money and make a profit.
To calculate whether a deal is viable you must have an accurate handle on the lifetime value of a client to your business. i.e. The total profit that a customer brings to your business over the lifetime of your relationship with that customer. The whole viability of the deal hinges on this.
For example a customer at your beauty salon spends $100 a time and comes back 10 times over the next couple of years. They’ve now spent $1000 with you. Knowing this, a daily deal where you get them to come in for $100 is a pretty good investment in your marketing.
If you’re a restaurant you want to sell as many add-ons as possible – drinks and deserts are great profit boosters.
You should offer a repeat customer loyalty card – you know the type – buy five coffees and the sixth one is free. By the way, loyalty schemes work in just about any industry. Think of how far we go out of our way to get a 4 cent discount on our fuel!
You must create a customer database which allows you to regularly keep in contact encouraging them to come back and spend more with you.
For example, a Thai Restaurant we went to recently took photos of the group and then asked for an email address so they could send them to us. Gives them the chance to let us know specials etc. They also offered “funny money” vouchers to spend in their gift shop.
Remember, getting them in the door the first time might be easy. You must have great customer service and a keep in touch marketing system to keep them coming back!
Finally, if you’d like help working out the lifetime value of a customer, you’ll find a formula at http://revealedresources.com/practical-tips/306-understand-the-life-time-value-of-your-customer.
If you’d like help setting up keep in touch marketing and/or daily deals, give us a call on (02) 9499-7958.
Rashid.
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