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Business owners are always looking for a silver bullet — a killer feature that will bring in new customers. The recent daily deals craze has held out the promise of this kind of customer acquisition, but when is a deal feature a silver bullet, and when is it is shot in the foot?
If you’re opening a yoga studio, like I was two years ago, the daily deals space is pure genius. It solves the problem of low attendance (because, really, who goes back to a yoga class with only two people in it?), and it helps get your name before a wide audience. I’m happy to earn $2 from you on that initial yoga class, as long as you help fill the room, and I have the possibility of seeing you again at full price. This applies to any group class with a single instructor (dance, yoga, etc.), if you know the class isn’t going to be at capacity with full price attendees.
The same “empty room” concept works for event tickets, another great candidate for daily deals. Unless you know your event will sell out, why not get the audience of a daily deal subscribership? The feature generates a little buzz for your event, and for the commitment-phobic subscribers, you just might get a full purchase sale out of it when they decide at the last minute they really *do* want to go.
Another business model that seems to love the daily deal space is the online business. I say this because besides the yoga studio, I run a daily deal site, and we do almost no work to get our online (national) deals. They come to us. Why? Because it works for them. Online businesses have lower overhead so they can absorb the margin hit from the feature. And what they really want more than anything is new customers in their database. We get to offer great deals (in our case green since our site has a green focus), and they get new buyers to market to. I hear over and over from online business owners that daily deals work incredibly well for them.
The other folks who seem to have realized the daily deal space works to their benefit are the spas, massage therapists, and other service providers who would rather have discounted business than no business at all.
So who doesn’t it work for?
The daily deals model does not work for many restaurants — particularly the crowded ones. Why would a restaurant with a full book sell a table to a discounted customer when a full price (and maybe regular) customer is waiting outside? In the case of restaurants operating on razor-thin margins, offering a deep discount only makes sense if the table bill goes significantly beyond the discount voucher amount. It’s a gamble many won’t take, and I don’t blame them.
Storefronts (non-online retail) also seem to struggle with the model. Burdened with fixed costs of rent and overhead, and variable costs of the product, it is hard to make the economics work out. Most daily deal sites require a 40% discount to run, and take a minimum of 30% of the sale price. On a $20 feature, the store owner might earn $8.40. The goal is to structure the deal for upsell, but in plenty of instances buyers just go nominally over the voucher amount. That leaves the store owner feeling it would have been more profitable to stay in bed all day than run the daily deal feature.
It’s also important to partner with the right daily deal site. Daily deal sites have their own economics to consider, and some of them need your feature to hit a certain minimum number of sales. For a tiny business, that might not work. Our site specializes in small business, and we are happy to set tiny caps of 20 or 30. We’re bootstrapped with no outside investors, so we can do that. Not everyone has that option. Other merchants have the opposite problem — it isn’t worth their time to run a feature and get only 20 purchasers. They’re better served working with the bigger daily deal sites, so scale matters. And finally, there are the sites that have a vertical focus (in our case green living, but for others surfing, outdoor activities, moms, etc.). Getting to your most likely repeat purchaser is the goal, and these sites can help you do it.
So, silver bullet or shot in the foot? I would argue there is no single silver bullet for new sales, just dozens of silver BBs. For some businesses, this is a great silver BB to add to their arsenal.
Lynn Roulo is the co-founder of Green Box Top, a San Francisco-based daily deal site for green and holistic businesses. She is also the founder of The Rasayan Center, a kundalini yoga studio in San Francisco and a CPA.