Daily Deals for SMBs; Use Caution

On Friday last week, I wrote an article regarding Groupon for your business. The content was extracted from a local newspaper story that included examples of “cautions” for businesses engaging in Groupon or Living Social.

As a consumer, I like the daily deals because it’s a win for me; however, as a small-to-medium business, the message is to read the fine print and assess the value versus the benefit. (I don’t work for or represent either company mentioned above, FYI.)

The comments to this post spawned more valuable insight from those who have more exposure than me, and I’d like to share them here in a round up. (It’s my view that many blog comments get buried, and when they’re as rich as these below, I need to bring them to light.)

• Marty Kotis,  said there is a difference between marketing and discounting or couponing. (Marty, please come back and share more on that for us?)

• Brandon Pierce of Experience Farm said, “Just this week I had an interesting conversation with a local business owner about Groupon. He said they avoid them at his restaurant because the payoff is so low and the customers come to expect the discounts. He said he would rather offer free items to larger groups of people – such as a free beverage or dessert – than create that expectation.

From a buyers’ perspective I can see Groupon being awesome. From business owner’s perspective, the risk of building a customer base that expects discounts is great. From a branding, marketing perspective, Groupon may be that barrier breaker that gets a new customer to discover the business and become a repeat visitor.”

• Neicole Crepeau of Coherent Interactive, who just published a post on influence, said she counsels her clients to evaluate Groupon carefully.  She’s determined it can be a money loser; however, those who stand to profit are those offering lessons or repeat services; a discounted lesson or service in multiples or continuing can make money in the long run.

• Brian Farrell offers a different perspective — a restaurant could spend $10k on newspaper ads and get $0 back. Or, they could offer an online Groupon or Living Social and get hundreds of new customers at or close to breakeven. Brian’s company adds loyalty programs and adds every coupon holder to a clients’ mailing lists so they keep coming back. And when they come back, they’re paying list price. These deals don’t work for everyone, but they never work if there’s no attempt to build loyalty.

• Ray Andrews, Bristol Harbor Software agrees. “If you were to offer for a fixed price a discount/loyalty card that would grant a 5%-10% discount on your next 5 purchases that might generate free income as well as foot traffic.

• Shane Rhyne, Ackermann PR, also cautions his clients to thoughtfully consider these programs. He says,

“Remember, Groupon (or any traditional coupon/discount/sale) is a tactic not a strategy. Because of Groupon’s pricing model, a small business needs to go in knowing they are offering up a potential loss leader in hopes of generating profitable revenue elsewhere in the transaction. But, if your entire plan for success involves selling loss leaders, then you won’t be in business long.

If a client is truly anxious to get into this arena, I also advise them to get active in a location-based social network (Foursquare, Gowalla, SCNVGR, etc.). With Foursquare’s recently expanded options for check-in specials, this program offers a true opportunity to generate loyalty-based discounts and special offers. This requires more than a “set it and forget it” attitude, but can be worked to create a useful set of marketing tools.

As a consumer, I do use Groupon and several other flavors of social/group coupon programs. I like the opportunity it gives me to “test drive” businesses I might not otherwise frequent. To date, I have only ever purchased one discount for a business where I was already a regular customer and I purchased that as a gift for a friend to encourage them to try it out. In that regard, I am also an ideal Groupon consumer– the one they tell small businesses about.”