Daily Deals Pose Challenges for SMBs

Thursday, October 27, 2011
Posted by John Beagle

SMBs succeeding with a new type of deal site; how landscape is changing

By John Vitti, Co-Founder and Chief Marketing Officer of Mobile Spinach

For many SMBs, the allure of daily deal sites is plain. Set an attractive discounted pricing and then attract a potentially huge group of new customers. However, when the discount percentage or cash savings drives the consumer more than their interest in the actual product or service, there is a problem. While the deal might attract many customers who get to sample your wares, they might then leave and simply look for the next discount.  Customers that frequently use such sites are less likely to develop brand or merchant loyalty, and might balk at returning to the same merchant and paying full prices.

While daily deal sites do offer deals specific to geographic areas, there is not nearly enough individual targeting. Especially in the larger urban areas, traveling 20 miles to try a new Thai restaurant might be worthwhile if the consumer gets $25 of food for $10, however the next time they crave pad Thai, they will go to the place down the street.

The common practice of including expiration dates on daily deal offers can negatively affect the brand feelings of your customers. For the new consumers who purchased the deal, typical human behavior means a large percentage of them will wait until the last minute to redeem their coupon for products or services. Smaller merchants who are enticed by seeing hundreds or thousands of customers purchase a deal can easily be overwhelmed if they are confronted by too many customers right before expiration. Turning away business is a fiscal and reputation nightmare for the merchant, and a headache for the deal site that must spend time handling a barrage of complaints. The merchant’s existing loyal customers will also feel inconvenienced if the flood of new customers does not allow them to make regular appointments or visits. And for the SMB, the repeat customers offer substantially higher ROI than a daily deal one-timer.

SMBs looking for a better “deal” are increasingly seeing the benefits of mobile technologies, especially location-based apps and platforms. Mobile advertising allows immediacy and hyper-targeting that daily deal sites simply cannot match. They are also more efficient, where an offer can be kept securely in some type of mobile wallet and presented at redemption. Daily deal sites that require printed coupons are operating an inefficient system where coupons can be lost or easily forged.

Mobile device users perform a multitude of daily life interactions on their phones, all of which can be tracked. SMBs can follow redemptions in real time to look closely at what customers are buying. Time stamps on redemptions can be analyzed by the merchant and possibly alter the timing of sales or even staffing decisions to meet observed fluctuations in demand. The trick for SMBs is to work with partners who are able to use this data to present location-based offers unobtrusively.  Mobile device users feel their mobile-based actions are very personal, and the usage of their information for advertising should be done with care. SMBs thrive off of steady customer traffic, and new mobile platforms are emerging which can produce steady customer flows instead of the unnatural customer behaviors that are typical of daily deal methods.

About the Author:

John Vitti was born in Boston, Ma and for the past 11 years has lived in San Francisco, Ca. He is an enthusiastic leader in start ups with a bachelor's degree in Business Management from Merrimack College.  His background is steeped in sales, business development, product management, and marketing for technology and consumer brands. For the past 2 years he has been working on Mobile Spinach which he co-founded to create an actionable relationship between local merchants and mobile consumers.