A friend lives in a townhouse and it’s about time to pressure wash the exteriors. The homeowner association got a few bids, but one owner spied a Groupon deal, which would have been significantly less expensive. He tried, unsuccessfully, to talk all the other owners into jumping on the deal.
Had he been successful, imagine what the owner of the pressure washing business would have been thinking. First he’d be elated that so many people snagged his deal, but when he started to do the work and realized he was going from neighbor to neighbor in this one townhouse complex, he probably would have been steamed.
Chances are the homeowners would have all scheduled their cleanings at different times so his crews would have been driving to, setting up, and breaking down at the same location multiple times. It would have been extremely inefficient.
Groupon, and similar discount systems, have worked out well for many small business owners, but often the story is exactly the opposite. You need to understand some of the pitfalls of using deep discounts for customer acquisition and have a clearly defined rationale for choosing Groupon or one of the other “daily deal” type of promotions.
Here are five questions to ask and points to consider.
1. Are you making a single sale or starting a relationship?
How often does a homeowner hire a pressure washing service? Not often. The owner of that small business couldn’t reasonably expect consistent follow-on business from the customers he served via the deal. A restaurant, on the other hand, if it impresses a deal buyer, might expect to gain a “regular.”
If you are looking to extend the relationship beyond the initial sale — and in most cases you will — make it easy for people to stay in touch by asking new customers to join your email list.
2. Have you done the math?
If you’re selling a product, be sure you know exactly what your costs will be if your offer maxes out. Will you lose money on every sale and can you afford that, especially if almost all of the demand crashes down on you at once? This leads us to the next point.
3. Deal buyers are often procrastinators.
I’ve heard from some small businesses that have posted deals that the people who take their offers tend to wait until just before the expiration date to cash in their deal. Typically, the business generated by these kinds of deals doesn’t spread out nicely over its given period of time. This can be especially disastrous if your deal expires around the Christmas shopping season. You’ll find yourself deluged with orders from Groupon customers and regular customers. You may struggle to meet demand and end up with some unhappy holiday shoppers.
4. Deal buyers are often low-end shoppers.
Some people look for “deals” more than they look for specific products and services. They get their emotional satisfaction from thinking that they got a “steal” rather than from the inherent value of the product or service that they are buying. Rather than stick with your small business and buy more of what you offer, they just start looking for the next insanely discounted thing to buy.
This is another example of why it’s important to stay connected with deal buyers after they redeem your offer. By collecting their email address, you’ll have the ability to follow up with additional offers or other incentives to encourage repeat business.
5. Deep discounts can hurt your brand.
Ultimately, if you’re trying to differentiate your small business in the marketplace, you need to do it with something other than a low price. You don’t have Walmart resources that allow you to operate on razor-thin margins. Further, when your full-price customers or clients see your Groupon deal, your small business will be devalued in their eyes.
Finding the right deal for you, and your customers
As I said at the beginning, Groupon, and other daily-deal deep-discount strategies can work, especially if you use it to kick off a long-term relationship with a customer or reward customers who are already loyal to you.
Instead of focusing on new customers, consider reaching out to your existing audience by sending an email out with a deal or coupon included.
Make sure the offer is attractive to your customers, but also works well for you. For example, a deal could be useful if you have some old inventory you want to liquidate. Just be sure that the lifetime value of your customers is worth the initial investment.
Have you used a daily deal for your small business? Share your story in the comments below.Business & Finance Articles on Business 2 Community