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5 Pitfalls of Daily Deal Sites for Small Businesses

Small business owners may be tempted to add daily deal sites to their advertising mix. The expectation is that a daily deal offer significantly boosts sales and ultimately the company’s profits, secures new customers, and results in long-term brand engagement. Think again.

Before participating in a daily deal, small business owners need to consider the following.

Can you fulfil the daily deal demand?

A daily deal offer may increase customer traffic to your Web site or storefront – maybe exponentially. The challenge for small business owners is estimating that response – and committing to the inventory and staff to fulfill that response. Craft your deal to showcase your brand, but perhaps offer your excess inventory. Or offer a service that represents a small percentage of your sales. Make the redemption period during a traditionally slow time for your business. That way you won’t compromise the service you provide to your existing customer base.

Are you prepared to break even, or maybe even lose money?

Daily deal sites require you to offer a product or service at a deep discount, then they may take up to 50% of that sale. Offers such as 57% off a holiday fruit basket or 85% off one month of unlimited yoga will certainly generate revenue – but will you profit or instead, barely cover your costs? Worse, could you lose money? Run the numbers beforehand – with several response scenarios – to make sure participating in a daily deal makes financial sense.

Will the customer spend more than the deal?

A customer buys your coupon for 62% off. How do you get that same customer to buy full-priced spa services, too? Make sure you clearly communicate your best-selling products and services during their visit, through your employees and signage. Staff appropriately during the deal redemption period, so you can accommodate the additional business – such as manicure and massage appointments.

New customer, but return customer?

Daily deal companies may dazzle you with the sheer size of their database – maybe a million from your geographic area. But what are the demographics of that database, and is it your target customer? Further, are responders to your deal simply bargain shoppers, or will they become repeat customers even when there’s no discount? Be prepared for the possibility that the business surge you realize from your daily deal may never return.

Are you building brand, or are you just the latest deal?

Marketing gurus will argue that you cannot build brand loyalty through couponing. However, there are other ways to engage the deal customer in your brand marketing. Ask for their email address, so you can add them to your database. Invite the customer to join your company’s social media efforts – becoming a Facebook fan or following you on Twitter. Communicate what makes your business unique during the deal redemption period – share customer testimonials and have your best employees present. While couponing won’t build brand loyalty, your relationship marketing efforts will.

Is participating in a daily deal offer right for your small business? Understanding the financial, customer and brand pitfalls will make your daily deal decision an informed one.