Don’t run a Group Deal without Reading this First!

Shoppers of all ages, cultures, lifestyles, backgrounds and demographics… are buzzing about “Group Buying” and “Daily Deal” Sites! You can’t search online for a product or service, without seeing an ad from Groupon, Living Social, Beget or one of the now hundreds of national and local “Group Buying” sites. The trend has caught on amazingly fast, as the “Daily Deal” advertising process allows money strapped businesses to tap into huge, lucrative networks of new buyers… without any money out-of-pocket. And, while some organizations now are regular participants in Group Buying marketing with excellent results… others who have tried and lost, can be quoted saying, “Without doubt, it was my worst ever business decision…” So, why is it that one business finds Group Buying sites a panacea and others a nightmare?

The Good… The Bad… And the Ugly, Horrifying OMG! Of Group Buying Daily Deals – “Without doubt, it was my worst ever business decision!”

The simple answer is that it depends upon the type of business, the product or service offered, the target market, the timeframe, the costs, the availability of inventory and the human resources and talent that are required to fulfill these often massive, sales online. The difference between success and failure in the Group Buying/Daily Deal process is very much industry and market specific. Social Climb’s clients are taught throughout the development of the marketing process, that each deal must be thoroughly explored on all levels, prior to making a Daily Deal commitment. We work to make sure that small businesses recognize that the excitement and hype, combined with the romantic idea of wooing and capturing dozens, hundreds and even thousands of new customers… can sometimes color the sound judgment needed to make the best bottom-line deal.

We further encourage our clients to look at the worst case scenarios, including what it would take to deliver as promised, no matter what the sales results are. Will you need to beef up raw materials, finished inventory, space, tools or staffing to make it happen? What if you increase these things and the sale flops? And… even worse, what if the final number of sales are so large, that you are doing more business in one day than you used to do all month? These are all questions business owners must answer for themselves. While, it may be fun to explore the possibilities of outrageous success, only you know the total radius of the good and bad possibilities in your business.

The next question then becomes, if you are not investing cash out-of-pocket in advance of the sale, can it really go so wrong???? The resounding answer is absolutely, positively, YES! In fact, in one horror story, a business owner actually lost over $20,000, delivering the promised offer on time. The cold facts are that there is no Santa Claus, no magic in marketing… and, even a massively successful sale can lose big bucks, if not well thought out.

group deals gone wrongThe $20,000 Daily Deal nightmare came from a small neighborhood cupcake bakery, owned by a bright, ambitious hardworking entrepreneur working hard to move forward in the toughest of times. The cupcake company ran a Groupon Special for 75% off a dozen cupcakes.1 Her business usually selling 100 cupcakes a month, generated orders for 102,000 cupcakes! Sounds exciting, but it was also frightening, exhausting and not profitable. She expected to make a few hundred sales and was astounded by the overwhelming response. She cut off the Groupon at 8,500 orders (times 12 in a dozen = 102,000 cupcakes) – can you imagine if she hadn’t turned it off early?

Her staff worked long hours to fill the orders and were worried about the effect this might have on the quality. In her 28 years in business, the last thing she wanted to do was let down her valued customers.

Her coupon was for a generous 75% off which left 25% for the profit of which she had to split with Groupon and absorb the cost of all the credit card fees. In an effort to meet the demands she had to hire part time staff which also cut into the profit margin. She ended up losing £2.50 ($3.92 in US Dollars) on every dozen cupcakes she sold and all of her profits for the year! Thank goodness she is still in business, but she says that she will never do a Daily Deal again.

The other online horror story in the Daily Deal space comes from a laser hair removal company. This 3 person company participated in a Groupon Daily Deal offering 6 body contouring treatments and 4 small-area laser hair treatments for 50% of the regular price. Normally serving dozens of clients weekly, this Daily Deal resulted in an alarming 3,085 vouchers being purchased. And, just as with the bakery, this company was in no position to handle anywhere near, this kind of volume… even on their best day.

The laser company’s problems started with the usually simple, appointment booking process and grew substantially when their (already unhappy) new clients were forced to wait 3 months to redeem their (already paid for) services. Personal, salon, beauty, and spa services are often purchased because they are needed services for special occasions or events; waiting 3 months was not acceptable for most. Then, there were additional issues with those who wanted to renegotiate their coupons, appointments and no-shows. And, while the laser company had wanted to broaden its exposure, threats of negative reports on Yelp and other social media, was counterproductive on many levels. The laser company was backed against a wall and worked many extra, stressful hours to accommodate as many requests as possible, risking the good name they had worked so hard to earn.

These are two of the worst case, well published scenarios. There are organizations that have found this option to be viable and, taking ongoing repeat and referrals into account… actually profitable. The key point is that Daily Deals are not good or bad… they are just one of the many options available to organizations because of social media and online market. We recommend that companies considering it take a look at the whole picture, taking inventory, resources, talent and timeframes into consideration. Have a reliable system in place to capture new customer email addresses, making it easy to continue to market to them. Make sure you can handle a huge influx of business with your usual quality and style on a timely basis if your offer should sell beyond your wildest expectations. And… last but not least, ensure you will turn a profit whether you sell 80 or 8000!

Tell us about your experience with Group Deals – whether from the perspective of the buyer or seller. We can all learn and benefit from your experience!

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Jamie Gallegos

About Jamie Gallegos

Jamie is the Founder and President of Social Climb a full service marketing agency located in Englewood Colorado. Jamie's expertise is in search engine optimization and strategic marketing solutions. With more than 15 years of website design and internet marketing Jamie is an advocate for small businesses across the U.S.
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