Groupon built the bridge between SMEs and online marketing, now SMEs have to use the business model to their advantage.
Groupon, Inc. has built the bridge between SMEs and online marketing. They came up with a "win-win-win" model where SME owners didn't have to bother managing online ads, customers received great discounts and Groupon got a cut with each deal.
It is still the only online marketing model that is making many people transition from staying in front of their computers to going out to local businesses and trying new experiences that otherwise they would have missed.
Collective buying is also the first revenue share model in online marketing. Before daily deal sites, SMEs could only place ads at fixed price or with ad words at Cost-Per-Click. Daily deals is a model that has simplified online marketing for business owners, because they only have to worry about delivering a great service to crowds of customers entering their door - not a bad position to be in.
Weakness in the model
However, there have been recent signs of weakness in the model. On the customer side, many people get weary after a few days as they receive daily emails with deals that don't match their interests, so email open rates are dropping fast. Others are disappointed with the level of customer service, often well below the regular service you expect.
From the SMEs standpoint, there have been negative experiences that have been widely spread through the community. Businesses that have failed with daily deals sometimes designed a deal that did not even cover fixed costs, so each coupon sold actually made them lose money. Many others were not prepared to handle so many customers and could not give them a quality service - both to these new daily deal customers but also to regular customers paying full price.
So how do you make sure that your business takes advantage of this emerging and attractive area of online marketing, without being plagued by the negative side of the model and lose customers - or even worse, money.
How to design a successful daily deal for your business
Here are the 5 keys factors when you think about launching a deal on a group buying site to ensure that your business is ready to design a great daily deal that will see your customers coming back for more:
1. Create a group buying sales projection
This is the most important factor and often the most tricky to figure out. A successful deal is not one that sells the most, but the one that brings a decent amount of new loyal customers. Some businesses should not sign up with the big daily deal sites if they are not sure that they will be able to handle so many extra customers. Keep in mind that daily deal sites can’t regulate how many coupons are sold since they send the deal to the entire city's database. Sometimes it’s better to try first with a smaller site in order to get familiar with the model and the deal mechanic.
2. Set the right price
With a good pricing strategy, you can target the type of customers you want to attract when launching a deal with a group buying site. Set low prices if you want lots of people to try your service, high prices if you want less but higher-end customers. And make sure that you are covering your fixed costs!
3. Think about how much you can discount your service
Discounts are normally imposed by the group buying site you are dealing with, as they want high discounts to make a good impact with their email campaigns. You will have to set at least 50% discount, but avoid misleading discounts that are only for a small part of the whole service. For example, 50% off starters in a restaurant.
4. Drive repeat business
Coupon customers are usually one-time visitors and you'll have to make an extra effort to make them come back. Besides a great service, it's recommended to incentivise them to return. A loyalty programme with small discounts on repeated visits might be a good idea.
5. Be aware of the commission
Bigger sites like Groupon and Livingsocial get around 50% commission on every coupon sold. Smaller sites ask for lower commissions. You can always try the daily deal model with a small site and then go for bigger ones when you are comfortable with what you're doing.
Turn visitors into loyal customers
Overall, it's clear that with massive discounts for customers and commissions for group buying sites, there isn't much left for the business. The SMEs that run successful deals are the ones that are able to retain customers.
If your business can't make people come back on a regular basis, a group buying deal won't help you. Make sure your business turns visitors into loyal customers and then start trying daily deals to boost your sales.
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