Make Daily Deals Work Long Term
In March, Hilary and Jimmy Brady of Wilmington, N.C., ran a socalled dailydeal promotion in an effort to boost sales for their new fashion accessories business, IntheBeanTime.com.
The couple had started the online venture three months earlier and at the time they were averaging just three transactions a day and had no employees. The promotion was for a necklace hand-stamped with any name for 21% off. They sold 144 over the course of three days. The site they used to market the deal, VeryJane.com, took a 25% cut.
Ms. Brady says they opted to use Very Jane over a biggername daily-deal site like Groupon.com or LivingSocial.com because it specializes in fashion and jewelry. And while they could have capped sales to a manageable amount on a bigger daily-deal service, they didn’t want to risk attracting business they couldn’t handle outside of the promotion.
“I didn’t want to overpromise and under-deliver,” says the 33-year-old. In the Bean time now has seasonal parttime help and sells about 25 items a day, Ms. Brady adds.
Daily deals are prepaid online coupons that exploded in popularity about four years ago. At the start, deals typically offered steep discounts—in some cases as much as 75% off—and the services made money by charging merchants a percentage of each transaction, often leaving sellers with little to no room for making a profit.
But today many daily-deal services offer merchants more flexibility. Deals can run for any length of time and without a minimum sales requirement, and some services approve of merchants offering modest discounts. U.S. consumer spending on daily deals is projected to hit $5.5 billion by 2016, up from $1.8 billion in 2011, reports research firm BIA/Kelsey.
Daily-deal promotions tend to be highly attractive to entrepreneurs just starting out because they offer the potential for immediate sales and broad exposure. But experts warn the strategy can backfire if executed poorly. Flubs include allowing for more orders than can be delivered on time, buying more inventory than an entrepreneur can sell and offering too big a discount.
Caroline Daniels, a lecturer on entrepreneurship at Babson College in Wellesley, Mass., says it never makes sense to structure a deal so the business loses money. “I see new ventures make this mistake all the time and they don’t make it twice,” she says.
Eric T. Bradlow, a marketing professor at the University of Pennsylvania’s Wharton School, says the goal of a dailydeal campaign should be to acquire new customers and retain them over the long term.
Mr. Bradlow described a recent visit he made with his 16year-old son to a local restaurant that was offering free breakfasts for a short period. He says his son wondered how the establishment could afford to be so generous. Mr. Bradlow responded by asking the teenager if they would have dined there had it not been running the promotion. The answer was no, because it was their first visit to the restaurant and they had never even considered going there beforehand.
Mr. Bradlow also noted that they paid for some items, including coffee and juice, and that because they enjoyed their visit, they would likely go there again.
Some entrepreneurs say daily deals tend to attract “coupon clients.” Yuksel “UK” Sahin, owner of Sanat Hair Salon in New York, says these are customers who are only interested in saving money. “They’re not loyal,” says Mr. Sahin, 34, who opened his four-employee salon in 2010.
Entrepreneurship experts say there are many reasons why daily deals work better for some merchants than others— including the structure of the deal, when it takes place and the types of goods or services for sale. And, of course, some services charge more—and have larger distribution channels—than their rivals.
Yael Lustmann, 42, says she runs her own daily deals through Facebook and Yelp for her shaved-ice shop so she can cut out the middleman. She recently put up a Facebook post inviting her fans one weekend to buy a four-ounce treat at the normal price of $3.75 and get a second one free. They just had to mention the name of one of her four employees, Chelsea, to get it.
“It’s not scientific, but I’d say about a third that came in were first-time visitors,” says Ms. Lustmann, who opened Sweet Crush Ice Bar in Los Angeles last August after working for about 10 years as an attorney.