Ten ways to not get burned by a daily deal promotion

These tips for making the most of a daily deal promotion come from merchants who’ve tried them, from Rice University business school professor Utpal Dholakia, who studies the industry, and Groupon Communications Director Julie Mossler.

  1. “You must prepare for your Groupon.” That’s NYC Bagel Deli owner Corey Kaplan’s number one piece of advice. “You have to be prepared for what you’re selling. You have to be able to afford to have that paper on the street,” he says. Rice University’s Utpal Dholakia adds, “Be careful in calculating your margins. Think about the terms of your offer and be sure you have a high margin on the item being offered. The daily deal salesperson tries to get the business to run a deal that will be attractive to the daily deal customers, but that is not necessarily in the interest of the business.”
  2. Don’t offer deals too often. Kaplan advises against offering more than one deal a year. “I don’t want to make the consumer think the regular price of my food is high. I don’t want them thinking, ‘I won’t buy there unless I see a coupon.’ And I don’t want my bagel sandwich to be seen as a discount item, because it’s a gourmet item.” For that reason, he adds, the coupon holders get exactly the same product as full-price customers.
  3. Don’t offer more than one deal at a time. According to Groupon’s Julie Mossler, Back Alley Waffles was offering discount coupons with several daily deals vendors at once, which can get any merchant into trouble. “If you’re running concurrent daily deals you’re having this incredible influx of traffic that you’re not used to,” she says. “And you’re training your customers to expect discounts. You have a stream of income coming in every week, but that’s not reality.”
  4. Be present during your deal. “That’s the biggest tip we can give,” Mossler says. “By that I mean, be present in the negotiations and in the process of setting up your deal and be physically present at your store. You’d be shocked how many owners will hand this off to a part-time manager or sign a contract and go on vacation. It’s really important you’re putting in as much work as Groupon is to get this off the ground.”
  5. Share details about your business with the deal vendor. “Before you even pick up the phone to work with any deal company, you should know your customer numbers and what your revenue looks like,” Mossler says. “We structure a deal with the goal to encourage overspend.” By that, she means that coupons can be designed to cover just a bit more than an entrée to entice a diner to put the overage toward a bottle of wine or dessert. Or a coupon can provide the merchant the opportunity to upsell: “A Groupon might cover a basic haircut or a partial haircolor, but you can upgrade to a full color or protein treatment,” Mossler says.
  6. Read the contract. “It’s surprising the number of business owners who don’t feel the need to review the contract,” Mossler says. “It seems obvious, but read through the contract and understand the payment terms.” 
  7. Capture coupon holders’ contact information. You’ve got new customers walking through your door. Don’t miss out on the opportunity to keep in touch with them. Imperial Tea Court owner Roy Fong asks his daily deal customers to sign in with an email address so he can market to them directly and follow up for feedback.
  8. Place a restriction on the number of offers available. Businesses that sell a lot of deal coupons can get into trouble when they outsell their own capacity to fulfill the deal. That can result in service quality issues not just for the deal coupon holders, but for regular customers, Dholakia warns. Figure out what you can handle, and limit your offer accordingly. After his first daily deal promotion Roy Fong began requiring daily deal customers to make reservations so that he wouldn’t be overwhelmed by walk-ins who crowded out full-paying customers.
  9. Consider a dollar discount rather than an item discount. For instance, Dholakia suggests, if you run a salon or a spa, offer $20 off of beauty services rather than a particular service for a set price. That way, he says, customers can be enticed to buy higher priced or additional items.
  10. Lower face-value daily deals can be just as effective as high-value deals in getting new customers. Dholakia says two years ago, deals in the restaurant category were commonly "pay $20 for $40 worth of food." Now he is seeing $8 coupons for $15 worth of food. The restaurant doesn't lose as much revenue, but they're "still getting the customer in the door."
Also see: What it takes to succeed in the Daily Deals game.

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