Daily Deal Sites and Digital Marketing

A MailChimp study found that 70% of small businesses surveyed hate daily deal sites.

Daily Deal sites like Groupon let you offer something like a 50% off promotion, so that new customers can get a $20 meal at your restaurant for $10 or a $50 personal training session for $25. Customers flock to your business, you’re happy, they’re happy, everyone is happy.

So how come businesses hate daily deal sites?

• Half the purchase price goes to the deal site. You’re not giving half off, you’re giving 75% off, even though your customers are only getting half off. For most businesses, this means taking a loss. Taking a loss with a lot of customers — sometimes far more than you budgeted for — can be very costly.
• You can’t change your mind. While there are deal sites that allow on-the-fly adjustments to offers, many require you to keep up your offer for 30 days and to give customers 30 days to redeem the offer. That can mean 60 days of losing money on deals. Unprepared businesses may run out of items or be overrun by deal-seekers, doing harm to their reputations.
• Payments arrive slowly. The payments for your deals go to the deal site, and you may not see any of that money for months. Add that to the cash flow issues created by large numbers of people redeeming deals and you can see why there have been cases of small businesses going under as a result of using a daily deal site.
• The deal purchasers don’t come back. In theory, you provide a great deal to bring customers in the door, and then they come back and pay full price. In fact, most daily deal purchasers don’t come back. They’re not there for your goods and services — they’re there for the bargain. Even if they’re very happy with the $10 meal or the $25 training session, they don’t want to pay twice as much for it next time.

If you do the math for a daily deal promotion to determine your actual cost and you are willing to spend the amount you’ll lose, daily deals can be effective advertising in the sense that they’ll often make new people aware of your services.

Here are some points to consider, though, before you decide to sink your digital marketing budget into daily deals:

• Most daily deals won’t get customers to your website. Some will provide a link to your website, but the ads are designed to get customers to make a purchase at the daily deal site. You’re paying for your own advertising, but you’re also paying for their online advertising. That means that your larger message won’t reach the buyers, you won’t have the chance to capture information that lets you reach out to them later, and they won’t have your web address in mind.
• Daily deals don’t have ongoing benefits. If even 10% of the people who redeem your offer come back, you’ll have gained some new customers, and that’s great. You have some control over how well you present your offerings, especially if your offer brings people to your physical location. However, the benefits of the deal will end when the deal ends. If you don’t continue to spend money, you won’t continue to get new customers from that deal. Putting the same investment into an improved website, SEO, blogging, or social media can pay off for years.
• You may not reach the people you want to reach. Only about 16% of consumers use deal sites, according to a study from Rice University, and most users of the sites are loyal to the deal sites — that is, they’re shopping for deals, not for whatever you have to offer. In many cases, the people who use deal sites are already customers of the companies they buy from; they’ve been visiting the deal site regularly and watching for deals on things they already like. There’s nothing wrong with giving your customers a deal, of course, but you can do it more cost-effectively and in ways that encourage loyalty to your brand rather than to the deal site.

Can deal site offers be a useful part of your online marketing mix? It’s possible. Use the right KPIs to determine whether these deals make sense for you. But don’t expect them to provide a good foundation for your digital marketing strategy.