Daily Deal Websites: What Businesses Should Know Before They Sign the Dotted Line

Digital devotees aside, the world first took notice of Groupon during Super Bowl 2011.

A series of expensive, 30-second ads for Groupon went down the wrong way with audiences. And the Tibet ad featuring Timothy Hutton quickly drew ire from the social mediasphere. The ads were also poorly timed since Groupon is on the brink of a $15 billion+ IPO. Groupon also rejected Google’s reported $6 billion buyout offer last year.

Groupon is a deal lover’s dream come true. It is a daily deal website that is localized to major geographic markets worldwide. It has new offers every day from local businesses to big retailers like Amazon. The deal is posted, and provided enough folks commit to buying, the deal “tips,” and the deal is on. You do need to provide a credit card number. If the minimum number isn’t met, the deal fails and you’re not charged.

And I have to admit, the deals are good—from half off food and drinks at your favorite local restaurant to over 40% discount on spa services. Digital advertising pundits predict that a “GO LOCAL v/s GLOBAL” scenario will triumph in the long run. And undoubtedly concepts like Groupon, LivingSocial, and other local deal websites are already emerging as top contenders in the race to dominate “Local.”

Deal lovers like me are still tempted to grab every Groupon that comes in their inbox. However for many , after this initial I-Got-A-Deal mania settled, experiences from disgruntled business owners started making their way onto blogs and networking sites, and we’re all starting to take note.

It was mostly the small business owners whose bottom lines took a hit. Lured into trying the deal-a-day websites, they overlooked some simple math.

Websites such as Groupon take 50% of the revenue upfront. It is up to the owner to put a limit on the “deals” they wish to sell during this time. Promises of increased clientele, exponential visibility, and instant profits are the draws.

  • A cupcake business got 50,000+ orders of cupcakes overnight after their Groupon deal went live.
  • A small time nail salon unexpectedly sold thousands of manicures and pedicures. (But they only had two stations for the service!)
  • And a local salon was flooded with deal-hungry mobs for a $6 haircut!

In all of the above scenarios and more, apart from the sudden chaos at business locations, many loyal customers were angry. Most hordes were single-time clients who don’t tip like regular, devoted customers might, nor in some cases, did majority clients tip the staff like they usually would.

A local café owner in Portland blogged that she had to dip into her personal savings to keep her business afloat after she had an unsuccessful and frightening experience with Groupon.

Bakery and salon staff—just like any other businesses’ staffs—cannot be paid half of their salaries, nor can bills and expenses be cut in half just because customers have 50%-off coupons.

Don’t get me wrong, I have clearly loved having these deals come up in my inbox. And it has given me a chance to try out some interesting local bistros and experience other services at discounted prices. But for small businesses, it is a high price to pay for a marketing lesson.

Here are some helpful hints if you are a small business owner keen to try out a local deal model:

  • Do the math. Most sites will take up to 50% of your revenue. Once all the payables have been taken care of, evaluate the pie left behind. Is it worth settling for less?
  • Read the fine print. After numerous complaints and at the behest of business owners, Groupon finally offered to put a cap on the deals. Opt for limited deals—one per household or such. You don’t know how your deal may spread over the Web.
  • Is your business equipped? Can your establishment serve 2,000 visitors, give thousands of haircuts, or detail 500+ cars a day? Get ready to manage more customer traffic.
  • Provide explicit information about the deal. If possible, provide information on your website and/or store bulletin board about how consumers can redeem their deals. This effort will help manage customer expectations.
  • Evaluate your business goals. Is it worth sticking your head out with the big guys? What are your immediate business goals and investment objectives? Coupon sites might not help you toward your goals.
  • Talk with staff beforehand. Let them know there will be hordes of deal-happy customers wanting to redeem their coupons as soon as possible. Hire extra temporary staff if you foresee the need and have the means.
  • And most importantly, THINK IT THROUGH.

Businesses can also gain immensely from such deal-a-day services. Keep in mind your bottom line and fixed payables. Many small businesses do not have huge margins like nationwide stores, nor can they afford big advertising budgets. Before rushing into it, whip out your calculator and go back to the basics.

Localized coupon sites like Groupon can work for you if you plan it right.

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