We have 4105 registered members today. Don't miss out on the latest news!
With the proliferation of services like Groupon, daily deal vouchers have become one of the hottest new marketing channels for businesses everywhere.
If you run any sort of retail business, chances are that you have either already been contacted by a sales representative from a daily deals site, or will be receiving a phone call very soon.
Competition is ramping up, with over 10 daily deal services on the Swedish market alone, and new ones popping up every month.
Due to the freshness of this marketing channel, there is a general lack of knowledge among businesses on how to successfully run a daily deal campaign. Done wrong, it can have devastating effects on any business.
In this blog post, we'll go through 6 key concepts that businesses have to consider and analyze when evaluating the use of daily deals as a marketing channel.
6 Key Concepts
1. Revenue split: What percentage of the voucher price will be taken by the daily deal service provider? The standard rate for tier-1 providers are at around 50%, with smaller players willing to accept rates as low as 20%. If your voucher price is cheap (below $10), some larger providers would want a 100% commission. A higher revenue split is not always negative, as a voucher run on a popular and expensive daily deal service will help you reach out to many more potential customers than a voucher sold on a cheaper service.
2. Marginal costs: What does it cost for you to produce each unit of the product or service that you want to run a deal on? For restaurants, raw material costs are high, which limits how they can use daily deal vouchers in marketing. However, other businesses such as hotels and massage parlors have large fixed costs and low marginal costs, which gives them great flexibility in designing their daily deal offers, for instance
as a way of managing capacity.
3. Cannibalization: How many of your existing customers who would have purchased at full price, are instead going to use your voucher? This is an important metric to be aware of, since an existing customer using a deal voucher at 50% off retail price most often means that you will lose 75% of the sale, after the deal provider takes their cut.
The exact cannibalization rate will vary from industry to industry, and will also depend on how well-known your business is.
4. Retention of new customers: How many of your new customers gained through vouchers will come back again? Not long ago, Groupon touted a 22% retention rate, which now is nowhere to be found on their website. In reality, figures of under 10% are the norm. As the supply of daily deals continue to increase, we can expect retention rates to fall further. As a business, you have to have a customer retention strategy in
place before running a deal, for instance by delivering awesome service, encouraging them to join your mailing list and follow your business on social media.
5. Overage: How much are your customers spending in addition to the voucher value?
Research in consumer behavior has shown that customers who receive a discount are more likely to spend more on peripheral items and services. Use this to your advantage and cross promote other items to your daily deal customers, for which you get to keep 100% of the sale.
6. Breakage: How many of the vouchers sold are left unclaimed? Breakage is pure profit to you. This figure will vary greatly from industry to industry, with rates of 30% not unheard of for riskier deals such as skydiving. Do keep in mind that you will most likely, depending on what deal company you use and your country's laws, have to accept the voucher price (not value) as payment even after the deal has expired.
Detta blogginlägg finns även tillgänglig på svenska på AllaDeals Blog