Archive for February, 2011

The 7 Deadly Sins of “Deals of the Day” for Advertisers to Consider

“Who wins from these coupons and at what cost?” That is a crucial and often overlooked question for businesses rushing to join the emerging “deals of the day” bandwagon being driven at breakneck speed by hundreds of companies across the US. Unquestionably, these arrangements drive short term spikes in business, but closer inspection reveals all is not what it may seem.

Here are seven (7) personal observations I have developed over the past year, having worked with small to medium sized businesses every day. These companies range from $500k to just under $10M a year in revenue and are always setting aside part of their budget to try new advertising ideas.

The 7 Potential Deadly Sins are:

1. Businesses are still paying for it. The average discount after a campaign (after adding in up-sell, cross-sell) is larger than normal. It lowers their overall margins.

2. They own the data. Daily-deal companies typically keep the consumers data and don’t share it with the advertisers. Unless there have an efficient way to capture the consumer data when the certificate is used – businesses lose.
3. Think it will bring “loyal” customers? Forget it! Double-check the research. Recent studies conclude the national average for repeat customers from campaigns such as these is less than 20%.
4. Is the business prepared not to blow all those new 1^st impressions? They should expect an abnormal demand for their products and services in a short period of time. Unless the first impression is great, the business can develop a bad rap fast.
5. What about current customers? They could be casualties. They are the ones that have been loyal, and as they say, “brought you to the dance.” Unless they are receiving the same love and attention during this heightened demand – watch out!
6. Breakage – potential liability issues! “Breakage” is the term many use when a business can’t fulfill a promised coupon offer where a customer has paid for it in advance. Many government authorities are investigating complaints from consumers that can’t use the coupons. Businesses could end up holding the tab for all “unused” offers or have to put money into escrow.
7. A company’s image and BRAND could be at risk! These campaigns can be very effective for new locations or brand new businesses with hardly any customers. BUT, if the business has an established brand – beware – consumers are smart and they may sit on the sidelines until that ridiculously great teaser offer comes along again. These campaigns have also been used as “ATM Machines” for businesses that have struggled during the financial downturn, but in the long run overall profit margins can be severely compromised.

The top tier companies that promote these offers have a great business model and many investors can’t wait to become their shareholders. But in the long run do they have the “middleman” or their advertisers’ best interests at heart?

STAY TUNED. There is more to come!  Every few weeks I will post more granular details and ideas about each of the topics in this edition. I hope you find this useful and share your comments and stories.

Derek Hall is an entrepreneur and founder of DartzDeals based in Austin, TX. He also has over 21 years of experience in executive management in the technology industry. He has founded several very successful companies since 2005 to serve the advertising needs of local business owners. DartzDeals business model is based upon persistent advertising via smart phones, the web, personal branded apps and high end print for local businesses to use for client capture and retention. DartzDeals website is www.dartzdeals.com.