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Friday, September 30, 2011

5 Pitfalls of Daily Deal Sites

Daily deal sites hold promise for small businesses since they help them gain access to a wider market and generate profits through higher volumes at lower prices.
One of the latest website services available, daily sites like 'Groupon', Living Social and etc', help small businesses reach their target clientele that is searching online for their specific products. These sites offer heavy discounts on selected products to lure more and more customers. The promise of more business, getting noticed by the masses, higher profits and wider market access pushes small businesses towards such sites.
However, this route to sales success is fraught with pitfalls, five of which are listed below:

1. A high percentage of the sale price has to be shared
Daily deal sites like 'Groupon' expect 50% or more of the final sale price as service charges. This is not a small amount and the small business only gets so much that will barely cover its costs, with little scope left for making profits. The hype about making money is not delivered.

2. Hefty discounts bring down the brand image
A discount dilutes the brand value of a product and it loses its appeal in the customer's eyes. Initially, there may be a spur in sales, but this will not be sustained since people's perception is that these products are not superior. Small businesses need to build a brand image, not see it slashed in its nascent stages.

3. Getting repeat customers is tougher
Signing up with a daily deals site may be suicidal since customers may never return. The success of a small business lies in its ability to get repeat customers. This is because it will dilute the image of the product and cast doubts on its quality.

4. Serves deal hunters not relationship oriented, brand loyal customers
The market today has two kinds of customers, one who are deal hunters with no loyalty or preference for specific brands. Such customers will always look for the best deal and buy the cheapest product. The second kind of customer is the one who seeks quality, likes a discount, but would rather pay a bit more for a better product, which if he likes, he will buy over and over again. Such customers are better to connect to, build relationships with, and they are the ones who will sustain the small business.

5. Loss of price integrity
Price integrity refers to a standardized price being charged from all customers. To make some direct customers pay a full price, while others get a discount for the same product almost at the same time from a different site, is unfair. It casts a doubt on the small business and makes a certain set of customers unhappy, who may never return.

Daily deal sites may offer benefits to small businesses, but they must be used selectively, perhaps for a special range sold exclusively through them, so that the pitfalls listed above can be avoided, and they can be utilized for better business prospects.

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