Earlier this morning, while checking the morning emails (mostly deleting spam), I came across a daily deal email from Living Social that actually caught my interest and caused me to make a purchase. Out of the past 6 month or so, while subscribing to these types of emails from various “daily deal” sites, I’ve only made 2 purchases (including today’s buy), but being in marketing my curiosity always has me checking deal companies of the day.
Locally, in our humble city of Louisville, Groupon and Living Social are the two fully national daily deal sites that dominate the market. One of the local business networking groups operate one, Google is currently running Google Offers in several of their test markets, and as a website design firm, we have even had several inquires from clients trying to price out what it would cost to design and develop a daily deal type of the site. Needless to say, everyone is trying to jump on the easy daily deal money making wagon.
Over the last year or so, several of our clients have run daily deals on Groupon and Living Social, and based on the their experience it has proven to be well worth it. But, as it has been proven over and over, running a daily deal with one of these vendors isn’t the right fit for everyone. Almost weekly, you hear a new horror story of businesses shutting down or barely making it due to the disaster caused by the participation on a daily deal site.
The ugly truth is, companies such as Groupon and Living Social take up to 50%-60% of the deal price. So, if for example, Vista Print is running a $10.00 offer on $50.00 worth of merchandise, after paying Living Social, the company actually only makes $5.00 per order, but still has to fork out $50.00 worth of merchandise. And if lets say 1000 individuals end up purchasing the coupon, Living Social makes $5000 (for facilitating), Vista Print has to provide $50,000 worth of merchandise for $5,000. And, I should mention, Living Social may take 30-60 days to pay the business. As you can see, the daily deal could very quickly become very disastrous.
Now, you ask, why would Vista Print decide to run this deal considering the their potential monetary loss. Well, just like most of the businesses who run daily deals, they rely on generating word of mouth and repeat business from daily deal customers. Companies hope that after visiting their site as a new customer and purchasing their merchandise at heavily discounted rate, you will be more likely to come back later, fall in love with their products and become their long term, loyal shopper.
Obviously, plenty of businesses have experienced great success from running a daily deal with a Groupon type of site, and made it work to their benefit. However, before jumping on the daily deal wagon, it’s extremely important to run a proper business analysis to see if a daily deal type of marketing effort is the right fit for your business.