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seems like there’s a new daily deal site every minute recently. the idea is that consumers will swarm if you offer them an incredible deal – for example, 50% off their dinner bill. and swarm they do, most of the time. but are these super deals working for businesses that run them? spoiler alert: I say hell yes.
the opening of an article last month in emarketer comes down firmly in the middle on whether daily deal sites like groupon, coupme, etc work for small businesses. “yeah,” the article seems to say, “they seem to work well for some places, not so much for others.” how helpful. the article identifies the biggest concern that I have heard from small businesses:
Giving discounts to consumers who would have patronized the establishment anyway is also a concern. According to a ForeSee Results survey, this is not unfounded. Thirty-eight percent of daily deal buyers—the largest share—said they were already loyal to the business offering a deal.
but look at the whole picture:
yes, nearly 40% of the coupon users were already loyal, seemingly confirming business owner fears that they are wasting money on deal sites. however, the article goes on to cite a rice university study on daily deal users that puts the effort “wasted” on loyal customers at around 20% across several top deal sites. in addition, there’s no information on what that means to the coupon user. for a pizzeria or sandwich shop, loyal might mean a few times a week for lunch. for an upscale bakery, loyal might mean once a year when it’s time to order a birthday cake.
and let’s not forget the gravy:
more than 60% of coupon users were people
who otherwise would have gone elsewhere.
60% shot at awareness and trial. where else can businesses find that promotional efficiency at any price? even better is research in the article showing what businesses are doing with that awareness and trial.
emarketer cites a june 2011 study from consumersearch and about.com that shows nearly 70% of daily deal users return at full price, and over half “become regular customers.”
This contrasts sharply with the rice university report above, which found that fewer than one in five deal users returned to purchase again at full price. why the difference? the rice study interviewed business owners – one has to wonder how scientific the process for identifying repeat customers is. I’m not saying that asking coupon users for anecdotal reports on repeat business is any more reliable. so let’s split the difference and say the actual figure is somewhere between 20 and 70%. If I was a small business owner, I’d take a 55% conversion rate on a promotion.
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Hi, I have wondered about these type of deals – whether or not they are a win/win situation. As a consumer I have used the coupons and gotten great deals and in certain situations have done repeat business with that company. I am glad it works out for the consumer and the business.
It's all about how good your upsell process is. I've talked to a few merchants here in Philly that have done daily deals. One restaurant owner HATED it and swore to never do one again. Her point was that, after Groupon took their chunk, the deal buyers almost never spent more than 1 dollar over the Groupon amount, so she didn't even get food costs covered. But she also had no process to try to upsell.
On the other hand, a carpet cleaner I bought a Groupon from really had his stuff together. The groupon was for the basic 3 room cleaning. But on the phone (and also when the guy got there) he was upselling couch cleaning, housecleaning, you name it. The initial deal might not have had any profit, but all the upsells sure did.