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Why the right daily deals introduction matters

The daily deals phenomenon can mean big business for SMBs, but only if it’s done right. Annette Slunjski has some tips for tailoring your deals so your business gets the most out of the experience.

Here’s why an ‘Anakin’ or ‘Luke’ daily deal introduction matters.

It was 1977 when Luke Skywalker turned from futuristic farm boy to Jedi and the Star Wars franchise was born. At the time, it was considered ground-breaking. Two sequels and three prequels later, it’s Anakin Skywalker’s story that is the first Star Wars interaction for today’s generation.

Which raises a question.

Ignoring advances in technology, what impact does the entry point to the Star Wars story have on the overall Star Wars experience? While Luke might be dominant for my generation, do younger generations push his character into the chorus line? Does the perception of Star Wars (the whole franchise) change?

Or in marketing parlance, does the entry point or first interaction with your company forever frame the customer’s perception of the brand?

Common sense says yes and the amount of resources dedicated to ‘on-boarding’ customers in financial services including patented processes and systems (see Bank of America’s Patent from 2011) shows customers love to be loved once they’ve chosen your business and keeps post-purchase dissonance at bay.

Which brings us to the daily deals or group-buying phenomenon. With the Australian market said to be $320 million with 80 daily deals sites and Groupon’s IPO netting US$13 billion, daily deals as a customer’s introductory encounter with your brand must be good, right? Well, it depends – on your objectives, costs, industry, offer and brand reputation.

US based research shows of the 80 percent of new customers daily deals bring in, only 20 percent become repeat customers and 64 percent spend only the face value of the deal. So if your profitability relies on repeat business or upselling then you might want to recalculate (also account for the 22 percent that never use the voucher). Some industries do better than others – 70 percent of health and services, and special events businesses reported a profit but only 44 percent of restaurants did.

The research also reveals insights to help make deals work for your business. Item promotions deliver 12 percent greater profitability than dollar promotions. Expect a boost in word-of-mouth via social media while the deal is running but a ten percent reduction in ratings on review sites (fulfillment issues perhaps?). An existing positive reputation will help you fare better if deal fulfillment goes awry and it will negatively impact women’s perception of your brand more than men’s. Traditional marketing channels (email, web, mobile) drives deal awareness until the tipping point is reached, then social media networks tend to boost awareness and purchase.

Daily Deal Shopper Profile (US based)

–        Younger, higher income, and live in urban or suburban areas.

–        Have little interest in being seen as different or “fringe” in their shopping patterns

–        Not very careful with personal finances, and do not think about spending issues all the time.

–        Interested in trying new products or services so as to have new experiences to talk about and influence others.

–        Attracted to a deal because it is a deal, and likely to be less sensitive to the actual terms of the offer made by the merchant.

U. Dholokia & S. Kimes, ‘Daily Deal Fatigue or Unabated Enthusiasm? A Study of Consumer Perceptions of Daily Deal Promotions’, survey paper from Rice and Cornell Universities, September 2011

With these research outcomes in mind, particularly the shopper profile, consider tailoring your deals by:

–        Reducing the discount amount; those who love deals will still buy;

–        Using the daily deals system to test offer variables to find the optimal combination;

–        Making the offer specific to an item not ‘dollars off anything’;

–        Employing a multi-visit offer; eg. $10 off each week for 4 weeks rather than $40 off on a single visit (weekly visits could turn into a habit – or at least give you a chance to show your true service levels not just ‘pressurised fulfilment’ service levels);

–        Preparing staff for ‘daily deal shoppers’ – the experience matters and staff determine a large proportion of whether that’s enjoyable or not;

–        Developing your offer in a way that emphasises your business’ differentiated position;

–        Taking advantage of any customer segmentation by limiting the offers to those most like your ideal customer (if the daily deals vendor segments their customers by more than city); and

–        Extend redemption timelimits to help spread demand, reduce pressure on staff and increase the ability to satisfactorily fulfill.

But then again – here’s a radical idea – maybe existing customers can deliver a better ROI and a more ‘controlled’ campaign than daily deals?

Even if your business is once-in-a-lifetime purchases – necessitating a constant inflow of new customers – existing customers can be a vital source of referrals and recommendations. By examining your data on customers, stores, products and past experience you could uncover an offer that rewards existing customers and gives them a reason to be a happy, loyal repeat customer – and the best thing is, they already know if you’re a ‘Luke’ or ‘Anakin’ kind of experience.

(Next week we’ll look at gaining insight from data and how that might help marketing decision-making)

The daily deals phenomenon can mean big business for SMBs, but only if it’s done right. Annette Slunjski has some tips for tailoring your deals so your business gets the most out of the experience.

Check out the research:

U. Dholakia, ‘How Businesses Fare With Daily Deals: A Multi-Site Analysis of Groupon, LivingSocial, OpenTable, Travelzoo, and BuyWithMe Promotions’, Rice University, June 2011

–        80 percent are new customers

–        19.9 percent became repeat customers (returning at full price)

–        35.9 percent spend over the face value of the deal

–        21.7 percent never use the deal voucher

–        70 percent of health and services, and special events made a profit

–        43.6 percent of restaurants and 53.7 percent salons and spas made a profit

–        72.8 percent of businesses had no loyalty to any one daily deal site with 48.1 percent indicating they would run another deal

–        Item promotions (eg. $10 off a manicure) deliver greater profitability than dollar promotions (eg. $50 worth of goods for $30) – 59 percent vs 47 percent.

U. Dholakia, ‘How effective are Groupon promotions for businesses?’, Rice University, September 2011

–        Profitability is driven by (i)how satisfied employees were with Groupon shoppers, and (ii)the promotion’s effectiveness in reaching new customers. (This US study sample had a majority of services based companies where employees supplement wages with tips; daily deals customers were noted as “not good tippers” which would have had a direct financial impact on employees)

M. Ye, C. Wang, C. Aperjis, B. A. Huberman, and T. Sandholm, ‘Collective attention and the dynamics of group deals’ Technical report available at http://arxiv.org/abs/1107.4588v1, 2011.

–        From launch till tipping point, ‘random discovery’ via serendipitous discovery on the web portal, in a mobile app, or via an email dominates buying behaviour

–        Once tipping point is reached ‘social propagation’ of deals over social networks is the dominant factor driving purchasing behaviour.

J.W. Byers, M. Mitzenmacher, and G. Zervas, ‘Daily deals: Prediction, social diffusion, and reputational ramifications’, Arxiv preprint arXiv:1109.1530, 2011.

–        Daily deal sites benefit from significant word-of-mouth effects (via social media – Facebook) during sales events

–        While the number of reviews (Yelp) increases significantly due to daily deals, average rating scores from reviewers who mention daily deals are 10% lower than scores of their peers on average.

Tuten & Ashley, ‘Promotional Strategies for Small Businesses: Group Buying Deals’, Small Business Institute Journal; 2011, Vol. 7, No. 2, 15-29