Online deal finding site The Dealmix has an excellent blog post analysing how daily deals can work for a business.
As the Dealmix points out, “daily deals can either hurt or help small businesses, depending on how they’re structured.”
In figuring out whether a deal will work, Dealmix breaks a group buying deal into four elements; expiration, quantity, terms and price;
Pricing the deal
Of all the areas, the pricing is the most critical. Get this wrong and you won’t achieve your objectives and it could be very quickly drive you out of business.
The Dealmix recommends two ways of pricing an offer – by making a net profit on the deal or structuring it a way that the customer’s total spend offsets the cost of the offer.
Using Average Customer Spend, or ACS, to estimate how much a customer will spend is problematic with specials and group buying deals as the takers are not going to be your average customers.
It’s likely group buying customers are going to be far less open with their wallets than your regulars. Trying to upsell price conscious is probably what brings cafes and restaurants unstuck with many of these deals.
Both methods rely on knowing the Cost Of Goods Sold and the Average Customer Spend. Notable in the stories of group buying disasters is just how many business owners don’t understand these basics.
If you don’t know what the total cost is to your business in providing the goods or services, you should be talking to an accountant before going near these deals.
Also keep in mind the group buying service is going to take their cut which will be between 15 and 100% depending on the size and nature of the deal. For many businesses the commission is a deal breaker.
Quantity
The biggest complaint from customers about group buying offers is the deals are booked out for months – it’s also how service businesses find themselves overwhelmed by the response to a keenly priced offer.
Again, before launching a group buying offer, understand the spare capacity of your business and ensure there is a maximum limit to the number of deals available – as The Dealmix points out, a sold out deal is a great marketing tool.
Terms
Conditions are probably the trickiest; put in too many gotchas and you’ll scare customers away or find yourself fighting with the 90% of clients who buy the deal without reading the T&Cs.
You can guarantee some of those fights will end up being public and it’s unlikely your business will win the public relations battle. This is not your business objective.
Make sure key terms like what days the deal is available on, maximum limits, types of service are reasonable and clearly defined at the time of the offer.
Expiration
When the deal expires is the key condition, it’s madness offering deals that never expires as they can come back to haunt you for years and it may even affect the resale value of your business.
The Dealmix suggests not restricting it to a month as you’ll be overwhelmed with customers while leaving it too long will dilute the value and any measurements.
Ideally the deal will last three to six months, which is another reason for understanding your business’ capacity at various times of the year.
Timing the expiry is important to, as The Dealmix suggests, the deal shouldn’t finish on a busy day and equally you should consider when your business is the quietest. If things are slow during school holidays, summer or Christmas then that might be the time you want to have the last minute rush of redemptions happening.
Business Planning
Probably the most important aspect of a group buying deal is how does it fit into your business objectives. Are you intending to build a customer base, contact list, pubicise your business, clear stock or give sales a boost? Those objectives are going to determine how you structure the offer.
As The Dealmix’s diagram shows, group buying deals are complex and the merchant has to give some thought on getting the offer right. Those business who do get the mix right can do very well from a well thought out online offer.
Like all business tools, group buying sites can be really useful when done well. The key is understanding what you’re doing with that tool.
We discuss group buying and building your own campaign in e-business, Seven Steps to Online Success. If you need help or advice in building an offer, Netsmarts can help you.
