Selling through daily deal sites: pros and cons

One of the most interesting developments of the Internet in recent years is the proliferation of daily deal sites. These sites come in many varieties, the most common three are: coupon sites like Groupon and Living Social, 24-hour sales like those featured on Woot, and software giveaways like Giveaway of the Day or Amazon’s Free App of the Day. This article examines the pros and cons of utilizing these sites for your business, including exposure and profitability.

No Such Thing as Bad Press: Profitability vs Marketing

Since the appeal of daily deal sites to consumers is getting a product or service for cheaper, chances are that the deal itself won’t be very profitable for your company. Furthermore, most sites charge a steep commission to be featured on their site (up to 50%). Resulting, most companies report a large increase in revenue but little change (and sometimes even a loss) in profits. The logic is that offering a deal is largely a marketing venture. Being featured on a site like Groupon attracts new customers with the potential to turn into return customers or at least spend money beyond what the coupon covers. The drawback is that as daily deal sites increase in popularity, returning customers that would be willing to pay full price ma instead take advantage of a coupon. That being said, for many small businesses, loyal customers will elect to not use a coupon to support the company.

A series of studies by Rice University professor Utpal M. Dholakia (linked at the bottom of this article) found that “55.5% of surveyed businesses made money, 26.6% lost money, and 17.9% broke even on their daily deal promotions; close to 80% of deal users were new customers of the business, and they spent $64.3 during that visit. However, just 35.9% of deal users spent beyond the deal’s face value, and only 19.9% returned to purchase at full price. 21.7% of deal buyers never redeemed their deal vouchers.”

The last point is particularly interesting, as for many participating companies the difference between a successful promotion and losing money was how many people let their coupon expire. Thus, its probably a good idea to make redemption durations shorter and put an upper limit on the deals available.

Many businesses have complained about the quality of customers they get from daily deal sites. Many owners cited them as cheap, that they upset service staff by not tipping, were unwilling to pay beyond the deal, and seemed unlikely to ever return unless there was another promotion.

Double-take: Is the Exposure Worth it?

In theory, increased exposure means a better likelihood to find target customers, the chance to work out bugs through increased customer support, and higher revenue numbers to pitch to investors. There will also be an increased customer support burden and your physical inventory could be depleted frighteningly fast.

Regardless of other outcomes, one thing that participating in a daily promotion guarantees is more clients. With the proliferation of review sites such as yelp! and feedback forms on software giveaway sites, this will also mean an increase in reviews. While you may have confidence in your product and will undoubtedly get some positive reviews, the same sense of entitlement that causes people not to buy services beyond the deal will inevitably result in bad reviews with little justification.

Another common complaint is that the exposure from deals has few long term benefits. This is most true for free giveaways. An interesting case is of Android app ShiftJelly, which you can read about on GigaOm.

That being said, being featured as a fee giveaway does mean that you are in the backlog on the offering sites. This gives you some credibility and the chance to get new customers through backlog browsing.

Popular Deal Sites

Relisting Sites

These websites specialize in reselling deals that people decide they don’t need anymore. Pro-tip: you could buy some of your own deals and relist them on these sites to increase your exposure and search engine footprint. http://couprecoup.com/http://www.dealsgoround.com/los-angeles

The Future of Online Advertising

Since participating in a daily deal is essentially advertising for most businesses, the cost and risks are usually associated with the marketing budget. As for 2011, businesses spend more on online coupon advertisements than on Google AdSense, email promotion, or social media; and certainly more than on print media, paper coupons, yellow pages, TV, radio, etc. An analysis of these ‘traditional’ types of advertising can be found in the docstoc original article “ Are Radio, Print, and TV Advertising Dead?”

You can view the Utpal M. Dholakia studies on DocStoc here:

http://www.docstoc.com/docs/89114790/How-Businesses-Fare-With-Daily-Deals

http://www.docstoc.com/docs/89114784/A-Startups-Experience-with-Running-a-Groupon-Promotion

http://www.docstoc.com/docs/89114780/How-effective-are-Groupon-promotions-for-businesses

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