Online daily deals: good for the customer but bad for business?
The UK is going mad for online discounts – the BBC programme The Apprentice aired on 23 May, where contestants had to source deals for such a business, highlighted this.
daily deal stats:
- According to organisers of Europe’s first Daily Deals Summit held in March, in just 6 months, from July to December in 2011, Britain spent £3 billion through daily deal websites such as Groupon.
- Voucher sites have taken over sitting at 37.4 million UK internet visits in December 2011, up 28% in a year, as visits to price comparison sites have halved year-on-year according to Hitwise.
- LivingSocial claimsthat its voucher sales have almost doubled when compared the previous year.Managing Derector of LivingSocial UK and Ireland said,
Over the last 12 months we have been rapidly expanding to offer membership to more UK consumers, and it is fantastic to see that the popularity of people trying LivingSocial, and discovering more about where they live, shows no signs of slowing down.
Looking at Edinburgh specifically we have a few main offer sites: Itison, Today’s Great Deal, KGB Deals, Wowcher, LivingSocial and Groupon, but the list is growing every year. Also, with the addition of Facebook offers into the market there is a question of whether pre-pay and sign-up deal sites will be superseded by instant login, socially-connected offerings. With the information that a hotel in Ireland made over $1 million in 24 hours on Facebook offers it’s a tempting deal for businesses.
the good bits…
Along with giving you offers such as 2 for 1 meal deals or even 70% off tooth whitening, daily deal or voucher sites can be incredibly helpful for businesses in a number of ways:
- Ensure restaurants fill up midweek tables that may have otherwise gone unsold
- Offer businesses the chance to reach out to potential new customers
- Build up a new contact data base for future promotions
When it works it becomes about getting as many people through the door when business is quiet and promoting the brand. If done well voucher and deal sites have the potential to be very successful for small businesses.
…and the bad…
If a business doesn’t do their homework, however, a daily deal or voucher marketing idea can spell trouble:
- Some daily deal business models take about 50% of all voucher sales
- The business must also be prepared for what could be a very busy time for staff: booking in and dealing with new customers while trying to up-sell in order to make back some of the lost income
- In some cases this is causing the business themselves to lose out on making money in order to promote themselves on these sites
big slap on the wrist for Groupon
At the end of 2011 daily deal sites came under some fierce criticism for over selling vouchers, mostly on behalf of small businesses who would have needed to risk bankruptcy in order to service these deals.
Indeed in mid-March the British arm of Groupon got its knuckles rapped after The Office of Fair Trading said it had found breaches of consumer protection rules. Groupon now have three months to ensure offers are realistic and prices are transparent and accurate.
UK based Copywriters Cooper Murphy conducted a survey into Groupon that found out:
- 82% of Groupon Business users were unsatisfied with customer repeat business
- 50% of Groupon business users would not advertise with the company again
- 65% said that Groupon was profitable for their business
Vouchers drive footfall but is this more of a fair-weather customer and not really what a business wants? Indeed in the Cooper Murphy survey 78% of merchants believed that people who buy vouchers of Groupon are more ‘stingy’ than regular customers. Surely the true goal of a business would be to generate a loyal customer base who will frequently visit without the need for discount or incentive, talk about their experience and get others to come and spend more each time – not just to get a lot of people through the door.
Let’s look at one local daily deal site in a bit more detail. Itison.com is a free-to- join website sending out daily deals to its members based in Edinburgh, Glasgow, Dundee and Aberdeen.
Itison takes 35% commission, however we have been told from a source that this is negotiable. We have spoken to one of the business who has offered deals on their site before and he cannot speak highly enough of them!
Eddie Brown, a personal trainer and director at Edinburgh City Boot Camp has run deals with Itison and has profited from this promotion.
He has, in fact, found that the quality of the Itison customer is “very high compared to a lot of deal companies” and this has lead to a 40% conversion rate from buying the offer to being a full-time customer with his company. His overall aim when deciding to run an offer was “to broadcast the business through their large database and let people experience my product”, and he has found this approach to be successful. Eddie has found the process of working with Itison a positive one and has some tips for another business looking to promote with a daily deals or a voucher website:
- Ensure you have an efficient booking system and follow up procedure for a return visit for customers.
- Make sure you can cope with the volume of new customers and make sure they get the same quality of product or service as everyone else.
- I have used 6 daily deals companies and their customers from different daily deals companies are very different: one did huge volume but conversions were only 10%. So decide what price point you want and volume would suit you best and do a little bit of research or ask around.
We also spoke to Reuben Welch, a partner of Alien Rock climbing centre, who have used Itison, Groupon, Living Social and Deal Monster to run offers. They haven’t been running their Itison offer long enough to know how many people will return after purchasing a voucher but said that Groupon gave them around a 10% return rate and Living Social around 20%. The promotions they run don’t give them huge profits; they run them to just increase awareness of Alien Rock and to make some money. Reuben also gave us his top three tips:
- The amount of repeat custom is likely to be low – don’t factor it into the financial calculations, it’s a bonus! The deal must stand up financially on its own, even if it just breaks even.
- Make sure you have plenty of good third-party reviews online before running the deal and that your website is up to scratch – people will research you before buying.
- Set your terms with them rather than the other way around e.g. 30% commission, payment on ALL valid sales, voucher validity to suit you, bulk payments to reduce paperwork. Set realistic caps on sales.
In an interview with The Drum in November 2011 Oli Norman, Founder and Managing Director of Itison, stated that they focused on “customer service, favourite brand terms and quality deals”.
We spoke to Jenny Wallace, Itison’s Director, who let us know that Itison clients can:
‘cap’ their deals to ensure that their feature is not oversold. We work closely with our clients to ensure that caps are manageable and controllable
They can also implement blackouts times on deals to try and avoid the problems Groupon ran into when more vouchers were sold than companies could handle. Jenny explained another way in which they avoid acting in the same fashion as Groupon is that Itison are very careful to ensure their top price is accurate, whereas Groupon have allegedly been known to inflate theirs in order to make the saving seem larger.
Jenny also had three top tips for a business looking to run a promotion with a daily deals site:
- Ensure your deal is structured to allow up-spend from your purchaser.
- Ensure your cap is controlled. The key to a deals success is the customer having a positive experience and seeing your business run to its optimum, not feeling like they’re being cattle herded!
- Treat your deal customers like gold – they are as valuable to you long term as your full paying customers.
In fact when it comes to daily deal sites Itison have some pretty impressive stats:
- 92% of their members use Itison to discover new places
- 88% of members have returned to the deal venue as a full paying customer
- The average Itison purchase is over £70
- 96% of Itison’s hosts would run another deal with them
- 73% of hosts even said that an Itison member is worth as much or more to their business than regular customers.
in the end
So it seems the rise of the voucher and daily deal site is almost unstoppable, and it makes sense: why would you pay £210 for an MOT when you only need pay £39 with a voucher, or receive laser liposuction for £592 when it’s £99 with a voucher. It’s the cheaper way of living an expensive life, through a piece of paper printed out from a website. Huge as the appeal will be to businesses looking to appear on the site it takes some consideration. Depending on your reasoning, what type of business you are, how you use it, and what deal site you go for, it could be a huge hit or a huge disaster…