THE REAL DEAL ON DAILY DEALS THE TRUTH, THE WHOLE TRUTH AND NOTHING BUT THE TRUTH JO MACDERMOTT NEXT MARKETING

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1 THE REAL DEAL ON DAILY DEALS THE TRUTH, THE WHOLE TRUTH AND NOTHING BUT THE TRUTH JO MACDERMOTT NEXT MARKETING

2 INTRODUCTION 2011 has seen the daily deal market morph from a niche industry into a phenomenon that has taken Australia by storm. As far as business models go, this web-based one has only had a short history. The daily deal system popped up in the USA in July 2004 with the launch of Woot. However, Woot is in fact, a modified version of ubid and ebay. So, quite different to the deal sites we see today. A recent article in BRW noted results from media analyst Telsyte indicating that group buying sites are the fastest-growing sector in the Australian online retail space, with revenue in the first quarter of 2011 reaching $73 million, which far exceeds the $63 million total revenue of all of The industry is expected to sales of up to $400 million in 2011 alone. As a consumer, I have had good and bad experiences with daily deal vouchers. Despite the ups and down, I continue to buy vouchers on a regular basis. As a marketer, I recommended a daily deal promotion to a client. I did so with some hesitation. To my surprise, it was an outstanding success. To read more about that, go to the Next Marketing Blog. WHY THIS EBOOK? The purpose of this ebook is to give you a no spin analysis on the daily deals market. It has been written as a practical guide for Business owners who are considering a daily deal promotion. ENJOY. nextmarketing.com.au 1

3 DAILY DEALS 101 Here are some quick facts to get started. WHAT IS A DAILY DEAL? A daily deal is a promotion that runs for a 24-hour period through a deal provider who publishes the offer online. Consumers need to be a member of the deal website to purchase the offer, however membership is free. WHO ARE THE MAJOR AUSTRALIAN DAILY DEAL PLAYERS? At the time of writing, there were over 55 daily deal providers in Australia. Most have only been in market for around twelve months, which, from a business model, is not a long time. The major players are: Catch of the Day Spreets Star Deals, Living Social Jump On It Our Deal Cudo Scoopon nextmarketing.com.au 2

4 DAILY DEALS 101 HOW DO THEY WORK? The deal provider s offer a too good to be true discount for a limited time, and by doing so gain the interest and excitement of their members. Members then spread the word via social media channels and encourage their friends to join in on their voucher-buying spree. This creates awareness and the process is simply repeated time and time again. ARE THEY HERE TO STAY? The general consensus is, and certainly my opinion as a marketer and a consumer, is that daily deals are here to stay. They will continue to gain momentum and figures show that consumers who use the model will grow more comfortable with it. ARE DEALS GOOD FOR BUSINESS? A daily deal that is structured well (with profit in mind) and executed with a high degree of customer service, provides business owners with a unique opportunity to gain new customers at very little cost. LIKE TO KNOW MORE? KEEP READING. TIPS! RESEARCH & INTERVIEW - Research and interview three daily deal providers. With over 55 suppliers in the market, negoiate the best terms and conditions for your business. nextmarketing.com.au 3

5 I AM A BUSINESS OWNER IS A DAILY DEAL RIGHT FOR ME? There is simply no easy answer to that question. Every business has a unique set of circumstances, which need to be considered carefully before engaging in a daily deal promotion. In my experience, daily deals are better suited for Business-to-Consumer markets. To understand the good bits of participating in a daily deal promotion here are some notes. REASONS WHY YOU SHOULD DO A DAILY DEAL. From a business owners perspective, there are several benefits from participating in a daily deal promotion, these include: Little financial outlay Attracting new clients Ability to grow the client database (fast) Grow add on sales (short and medium term) Staff training Negotiate better pricing with key suppliers (volume discount) Generating instant cash flow One degree of separation between the business and the discount Communicating the business name to a new audience Boost overall brand awareness, in particular online. nextmarketing.com.au 4

6 I AM A BUSINESS OWNER IS A DAILY DEAL RIGHT FOR ME? IS THERE ANY LONG-TERM VALUE? In my opinion, the only way to get any long-term value out of a daily deal is to have a follow up marketing program in place. Give your new customers reasons to return to your business as a full price client. Here are some suggestions: A voucher towards a full priced service Invitation to an instore or product launch event Regular newsletter update HOW TO TREAT DAILY DEAL CUSTOMERS Treat your coupon customers as you would any other customer and do not assume that they are bargain hunters. People from all walks of life take advantage of these deals and I have witnessed plenty of them become repeat customers after receiving excellent service - including myself! UPSELL OPPORTUNITIES - KEY TO SUCCESS The best daily deal for your business is one where upselling opportunties are a natural extension to the deal. nextmarketing.com.au 5

7 I AM A BUSINESS OWNER IS A DAILY DEAL RIGHT FOR ME? For example, when Next Marketing recommended a daily deal to a client, much effort was put into the process to ensure that upselling opportunties existed. Additional sales were achieved at full RRP. However, before you proceed, a word of warning... For example, when Next Marketing recommended a daily deal to a client, much effort was put into the process to ensure that upselling opportunties existed. Additional sales were achieved at full RRP. However, before you proceed, a word of warning... TIPS! BOOKINGS - Systemise the booking process in your business. Ensure that new coupon clients can be booked in with the least amount of effort. nextmarketing.com.au 6

8 BEFORE YOU PROCEED A WORD OF WARNING I would like to highlight one of the major problems that business owners have met when participating in daily deal promotions. SELLING TOO MANY VOUCHERS Let s start by saying that it is very rare in marketing that selling too much of something becomes a problem. However, with daily deals, it has proven to be one of the biggest pitfalls. Why? An excellent response has left businesses turning away full priced customers away. In short, the business has ended up with too many customers. They operate at over capacity. They give bad service and end up with a bad reputation. It is not a pleasant situation. Furthermore, staff who are run off their feet are likely to get a new (and less stressful) jobs, which leaves your business under resourced as well. Ouch. How does this happen? Simple. The deal provider sells too many deals and the business allows them to do so. Where does the fault lie you ask? In my opinion, it rests on both sides. nextmarketing.com.au 7

BEFORE YOU PROCEED A WORD OF WARNING THE HARSH REALITY Firstly, any business participating in a daily deal promotion should have done their numbers (see the next section). No excuse.

9 BEFORE YOU PROCEED A WORD OF WARNING THE HARSH REALITY Firstly, any business participating in a daily deal promotion should have done their numbers (see the next section). No excuse. It is up to a business to know what their extra capacity was and how many new customers were right for them. Simple. Secondly, the deal provider being incentivised by the more deals we sell the more money we make mentality does not ask the business assertively enough, or at all, how many deals they would like to sell. They are at fault too. It becomes a very unfortunate situation for all parties involved and is the main reason why the deal market has recieved such bad press in the past six months. nextmarketing.com.au 8

10 DISCOUNTING IS IT REALLY FOR ME? While there are some bonuses of participating in a daily deal promotion, and in particular attracting new customers and developing instant cash flow, a discounting process lead by a business direct, can often cheapen the brand that you as a business owner, works so hard to protect. At the end of the day, a daily deals promotion is a discounting strategy, which does not suit every business. Here is a quick list of pros and cons of discounting: ADVANTAGES OF DISCOUNTING Build greater exposure Bring in an influx of new clients Result in quick cash flow through quantity of sales in short time Can create buzz around a company Encourages customers to tell their friends about the business DISADVANTAGES OF DISCOUNTING Too many new clients (over capacity) Realisation after the fact that the product/service was discounted too much Decreased profit margins Risk the businesses integrity From a marketing perspective, a daily deal promotion run by a third company is a good way to be one step removed from the discounting process. In moderation, discounting has its place in the Marketing Mix. nextmarketing.com.au 9

11 HERE ARE SOME TIPS ON HOW TO STRUCTURE A DEAL With any Marketing activity, the more thinking and planning that goes into the promotion before it is launched, the better the overall outcome. When considering how to put a daily deal together for your business, please consider the following points. KNOW YOUR MARGINS. Work out exactly how much each deal is going to cost you and how much profit will be made from each person who uses the voucher. Be very careful when making estimates. Do the arithmetic based on a worse case scenario. Remember that the amount you receive is less commission and then less GST. Does that cover your costs? WHEN ARE YOUR QUIET TIMES? A daily deal is best run during a quieter period of business. You certainly don t want to turn away your existing, fullpaying customer base. Limit the deals to periods in your week where you have extra capacity. Ensure that this is included as one of the conditions of the deal. HOW MANY DO YOU REALLY WANT TO SELL? This is a very important question. The answer we immediately think is of course, as many as possible - but is that true? If you were to outsell yourself, would you have the manpower and the resources to keep up with it all without sacrificing your business? nextmarketing.com.au 10

12 HERE ARE SOME TIPS ON HOW TO STRUCTURE A DEAL Be realistic about what you can and can t do because you certainly don t want to wind up with a bad reputation, or your full paying customers going elsewhere because you were/are booked out. LIMIT THE NUMBER OF DEALS SOLD. HOW CAN YOU GET BOOKINGS WITH THE LEAST AMOUNT OF COST/EFFORT? Once people have bought a voucher, it is likely that they will need to arrange a time to use it. Think carefully about how this is going to happen. What will the process be? Will they need to , call your business or enter details onto a website? The phone ringing off the hook day and night is not a desirable outcome. I have known of businesses that have had to hire additional staff just to answer the phone. Does your profit margin allow for such activity? Be sure you employ a method before the fact to avoid the madness. nextmarketing.com.au 11

13 HERE ARE SOME TIPS ON HOW TO STRUCTURE A DEAL HOW WILL YOU KNOW WHO IS A REGULAR CUSTOMER (FULL PAYING) AND A DEAL CUSTOMER? I purchased a voucher for three months of unlimited services at a beauty salon. It was a fantastic deal and I wasn t surprised that in some instances when I phoned I was unable to make an appointment. However it left me thinking, what if I was a full paying customer? I would be rightly annoyed that I had to wait to make an appointment because people paying far less than me for the same service were already booked in! For each deal, think about how you will decipher whether a customer is, a deal customer or someone paying full TIPS! FINE PRINT - Ensure that the fine print is exactly what you outlined to the deal provider in your contract. Remember, it is too late to make changes once the deal is live. nextmarketing.com.au 12

14 PRACTICAL TIPS If you are seriously considering participating in a daily deal, here are some additional tips for you to consider. RESEARCH THE DAILY DEAL PROVIDER. Find a daily deal provider that has experience with the type of business you run. Get as much information as possible. SOME KEY QUESTIONS TO ASK Has the provider signed the Daily Deals Code of Conduct? At the end of the day, are they a company who you are proud to be associated with? What is the commission structure? How quickly will I receive payment? Who is my contact person? CHECK THE FINE PRINT. The daily deal companies have their own copywriters and designers. The truth is that they don t know or care about your business like you do. Check the artwork, text and terms and conditions carefully before the deal goes live. Be firm about wanting changes. Remember, this is a representation of your brand as well as theirs, so there must be an element of collaboration in order for it to be a success. nextmarketing.com.au 13

15 CONCLUSION At the end of the day you, as the business owner, know your business better than anyone else. Does the daily deal fit into your Marketing objectives? Can your business cope with the additional volume? Do you have a Marketing Plan in place with ideas to turn your deal customers into long term full paying clients? It s all about making the daily deal promotion work for you. Don t forget that the industry is still a very new one and people running the daily deal sites are still on a learning curve as well. Proceed with cautious enthusiasm taking into consideration the tips outlined in this ebook. CHECKLIST What do you want to achieve from this daily deal? What kind of deal are you running? Discount, twofor-one, experience? Be realistic; is the discount too much? Too little? Which daily deal provider will you use? What are your margins? When are your quiet times? How will you get bookings? How will you establish whether a full paying or coupon customer is making a booking? How will you encourage add-on sales? How will you encourage repeat business? nextmarketing.com.au 14

16 WHAT TO DO NEXT? NEXT MARKETING NEWSLETTER Learn about: The latest thinking and trends in Marketing Great design from around the globe General business tips SHARE Did you find this ebook interesting? Please share it with your clients, colleagues and friends using this link. SAY HELLO ON LINKEDIN If you enjoyed this ebook, why not log into LinkedIn and say hello? nextmarketing.com.au 15

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