Jay Leonard
Google has recently launched the beta version of their Google Offers service. This service comes on the coat tales of Groupon, LivingSocial.com, BuyWithMe.com and many other successful daily deal sites vying for attention in a price-sensitive economy.
These site all work off the same principle, sign up for their service and you can receive daily deals at 50-90% off retail. The deals are usually contingent upon a minimum number of people making a purchase.
The concept certainly drives large volumes of potential customers to purchase, but as a business you need to use caution. I have seen many businesses that put their product or service on sites like groupon and ended up losing money with little repeat business. These companies are usually food service businesses or those with slim profit margins to begin with.
How do you ensure daily deals are right for you?
Be sure that your offer is either high margin or that you can sell add on services when the customer comes in.
Good Daily Deal: High Margin with Upsell
Some perfect Examples of successful company strategies with selling add-on services are the smart lipo and hair removal services. These are services that usually sell an initial 3 appointments on the daily deal site for a low price and then recommend a total of 6 or more sessions to see optimal results.
This works because they are selling a high margin service at a low proce to entice new customers and then up-selling the customer to another 3 sessions at retail prices.
Bad Daily Deal: Low Margin, no Brand Loyalty
Examples of bad daily deals are pizza shops and small takeout restaurants. This is because the margins on food are so low that they are losing money and there is little opportunity to up sell or create repeat business.
These types of deals generally get purchased by deal seekers who have little brand loyalty. It may succeed I’m getting people in the door, but if you are struggling to pay the bills, you may find yourself deeper in debt if you get hit with a lot of low margin orders all at once.
The Risk: Market Price Erosion
Daily deal sites have provided great opportunity for some industries, but it has also caused market price expectations to drop dramatically. The more frequently a daily deal site features deals with the same offer, the higher the risk of market price erosion. An example of this is the massage industry. Site like Groupon and LivingSocial exploited the success of massage services by offering them monthly and then almost weekly. Users of their services would purchase the deals in large numbers. The deals were generally offered at 60% to 80% off retail.
This began to set a precedent for buyers of massage services. They could try to find a massage parlor and pay retail price or just wait a few days and purchase a massage deal for at least half the retail price.
Massage services then started seeing a drop in the price customers are willing to pay. These deals are then available on secondhand resale websites, so customers could even purchase them without being a part of the original daily deal.
So are Daily Deals a bad idea for small business?
No. I am not saying you should avoid these deals all together, but I am saying that you should be cautious about how you structure your deal. Be sure you know how much they will charge you and how you plan to up sell the customer or gain their loyalty. If you structure your daily deal properly you can avoid there pitfalls and drive new customers to your doorstep.
So is Google Offers worth checking out?
When compared to other services, Google has a lot more to lose in doing deals wrong. I would expect that they will leverage their strengths to maximize your exposure while maintaining your profitability.
The jury is still out as to whether the Google Offers platform will trump the likes of LivingSocial or Groupon, but it is certainly a contender.
For more information about how to structure daily deals, tweet me @MrSimpleMedia
What do you think? Is Google offers worth it? Will they do it right? Are daily deals worth the time? Leave a comment below and let’s discuss.
This article was written for Business 2 Community by Jay Leonard.
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I think that if people look at the bigger picture they will see that Google Offers actually has an edge over the more established daily deal sites. That edge is their experience with Adwords, their ability to aggregate, as well as their ability to geo target customers. Many local businesses are already using Google Adwords so these businesses already have an established relationship with Google.
If you really think about it, the daily deal business isn’t that much different from Google Adwords – with Google Adwords businesses are paying for clicks and with Google Offers businesses are paying for sales. Google Offers fees are specified upfront so I think it’s a little easier calculating profit margins. Of course with Google Offers you have to offer deeper discounts but I think you have to offer discounts with Adwords as well if you want to turn visitors into customers.
Google Offers also teamed up with a bunch of other sites that they are aggregating deals from. This alone gives Google an edge because they are able to offer more deals. In my opinion this keeps customers coming back because they have more to choose from. Of course Google aren’t the only ones doing this, Amazon is doing the same thing with AmazonLocal.
That was a great comment Danny. I agree that google has the edge due to many issues.