Voucher sites have come under heavy criticism this week for over-selling coupons, leaving small businesses in a position where they can’t honour the deal without the risk of bankruptcy. Just ask Rachel Brown. The founder of Need A Cake tells a cautionary tale if ever there were one. The owner of the small bakery, which employs eight people and typically sells around 100 cupcakes a month, found herself struggling to fulfil an order for 102,000 cupcakes when an offer through online deals giant Groupon went horribly wrong.
The deal, which gave participants 12 cupcakes for £6.50 rather than £26 (a discount of 75%), was snapped up by 8,500 people; meanwhile Rachel, who had wildly underestimated demand and failed to properly factor in the deals site’s slice of the £6.50 fee, made a £2.50 loss on each order, taking a £12,500 hit overall once extra agency staff and distribution costs had been accounted for, wiping out her entire profits for the year.
On the other hand, if structured well, these sites have the potential to showcase your small business to an audience of millions, offering a significant marketing boost. As with any promotion, you need to plan the activity carefully, ensure you can cope with demand and research potential partners before taking the plunge.
Gerard Doyle, CEO of DiscountVouchers, offers the following advice for small businesses considering a move into daily deals:
1. Cap the number of vouchers to be sold
Almost every UK daily deal site will let you cap the number of vouchers on sale, so use it! While it might sound good to have 10,000 people turn up at your local store looking for a haircut, can you really serve them all?
2. Regional targeting
Test regionally before you hit the big national button. All daily deal sites offer different regional targeting. You need to decide if you are regional or national. Many businesses have a regional walk-in store but also a national mail-order business.
3. Staff capacity
Make sure you have enough staff for the day the deal launches and when people can start claiming. Daily deals, as the name suggests, are a time-controlled marketing vehicle. The daily deal site will launch your deal on one day, which is when you’ll receive a lot of customer service calls. Make sure you have a staff member free to take these calls. You should expect even more calls the day the vouchers are delivered. If you can provide a web booking form then this is highly recommended.
4. Set the right price
This is usually the focus for small businesses and for good reason; it makes or breaks most deals. Group buying site members are by their nature pretty savvy shoppers, so unless you offer a truly good saving your daily deal will pass with just a whimper. Remember, if you’re making a loss on each voucher you could be in for a nasty surprise.
5. Daily deals are a marketing shot in the arm
Daily deals are not a continuous marketing channel for most businesses. You should use your deal to drive new customers or clear distressed inventory. Most businesses make the mistake of trying to work a daily deal into their current margins. Forget your fixed costs and look for the product or service that if you don’t sell you’ll have lost and that is where you’ll find your deal content.
6. Don’t forget the daily deal site's margin
The ‘headline margin’ that the daily deal sites will take is 50%. But this is the negotiation point. A truly commoditised product could have a margin as low as 15%, eg petrol. However, a product or service with low variable costs could see 100% of the voucher price being given away, eg a golf ball driving range on a weekday before 5pm.
7. Drive repeat business
The savvy group buying merchant plans how to turn the voucher visitor into regular customers. The nature of sampling a product goes a long way but you should also consider offering a retuning discount and adding customers to your mailing list.
8. Multiple purchases and gifts
If the value to your business is new customers, then don’t allow people to buy multiple vouchers. However, buying gift vouchers for friends and family may be a wise move.
9. Restrict use of vouchers
If your local restaurant is always half empty during the week but sold out Saturday and Sunday, then restrict your vouchers. You don’t want to cannibalise full paying customers with voucher customers. That being said, make sure you compensate restrictions with an even better deal or you will fail to sell any vouchers.
10. Control the terms
You control the terms on the group buying site, so use them! The fine print will save many small businesses being fleeced by extreme couponers. Common terms are ‘not valid with any other promotion’, ‘not redeemable for cash’ and ‘can’t be split across multiple visits’. Spend some time looking at the terms your competitors have used.
Gerard Doyle is the CEO of daily deals site DiscountVouchers.co.uk. The site launched in 2009 in direct competition with US brands operating in the UK, and has since featured offers from more than 3,000 retailers, including Marks & Spencer, House
of Fraser and Sainsbury’s.