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Daily deals: Are they effective for small to midsize businesses?

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December 12, 2012

Michael Gavin is senior vice president of direct sales at Merchant Warehouse

Michael Gavin is senior vice president of direct sales at Merchant Warehouse

By Michael Gavin

Due to emerging technology, consumers are looking everywhere for discounts and opportunities to save money. In response, retailers of all shapes and sizes are looking for new ways to deliver relevant offers and discounts to new and existing customers.

While media attention continues to focus on larger daily deal sites such as Groupon and Living Social, both of whom have been rumored to be fading in terms of value over the past several months, small to midsize businesses remain challenged with meeting consumer expectations and are looking for new opportunities to connect with customers.

With an onslaught of new ecommerce players such as Fab.com, some Wall Street analysts are predicting the end of daily deal sites may be near.

Deal or no deal
Regardless of the long-term fate of daily deal services, there is no denying that consumers today value and take advantage of deals.

According to a recent report from market researcher BIA/Kelsey, annual sales from deals – daily deals, instant deals and flash sales – are expected to eclipse $4 billion by 2015, up from just $873 million in 2010 and a 35 percent annual growth rate. This leaves the question, should SMBs implement a daily deal program?

Despite the prognostications of daily deal doom, many businesses are still inclined to put deals through sites such as these to gain more attention and attract new customers.

With the increased online and mobile competition and a consumer landscape that has come to expect deals and purchasing incentives, SMBs need to develop their marketing strategies to drive incremental business this coming year.

Many SMBs are dealing with the challenge of evaluating the decision to implement a daily deal.

While one business may enjoy great success with a daily deal, another may find that the investment yields no return.

For example, recent research indicates that, on average, daily deals are sustainable for approximately one-third of businesses and there are definitive metrics based on the type of business you own, with the highest success percentages for photographers (75 percent), health and fitness (69.3 percent), retailers (50 percent) and restaurants and bars (44.2 percent).

While less than 50 percent of businesses running their first deal report profitable promotions, 75 percent of those running seven or more deals reported an overall positive ROI.

Size does matter, with research indicating that SMBs with annual revenue of less than $400,000 enjoyed a 41 percent retention rate on customers acquired via a daily deal, while those with more revenue retained only 15 percent.

SMBs must consider and weigh these possibilities before employing a daily deal program, as it might be more cost-effective to implement mobile strategies such as geo-fencing.

On the fence
Geo-fencing allows retailers to target local customers who are within a specific radius or location to send them offers and deals.

Consumers are increasingly using their mobile device as a way to shop and search for deals. SMBs who want to take advantage of these consumers should implement geo-fencing as these deals can be sent to mobile devices instantly.

If a consumer is out doing her daily errands and she receives a deal to a local business, she is more likely to take immediate action and make a purchase.

In fact, more than one-third of consumers are more likely to make a purchase from a deal from a local small business.

Deloitte claims that smartphones will impact 5.1 percent of all retail store sales in 2012, equivalent to $159 billion in revenues.

SMBs must leverage this opportunity and employ mobile marketing strategies that will retain current customers, attract new ones and help grow their business.

Also, SMBs must find a way to set themselves apart, and targeting customers provides SMBs with a unique way to interact and engage with potential customers.

Daily deals can both drive new business and keep customers coming back, but research indicates that is only the case one-third of the time.

TO TRULY DRIVE sustained growth, SMBs must focus on marketing strategies and other value-added programs they can combine such as loyalty and reward programs to ensure that any and all acquired customers have an incentive to return.

Essentially, rewards give customers a reason to come back and not just experience a one-time deal at a deep discount. SMBs want repeat business, not just a customer who visits based on a single deal. What is more valuable to you?

Michael Gavin is senior vice president of direct sales at Merchant Warehouse, Boston. Reach him at mgavin@merchantwarehouse.com.

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