Social media marketing has so many new and emerging opportunities. One of the most popular these days are the daily deal sites - Groupon and Living Social being the most prominent. However, there are more deal sites popping up all the time targeting more niche spaces. These properties have brought many great deals to consumers, including me, but are they working for the merchants? This post provides some suggestions about how to make one element of social media marketing, the daily deal sites, work financially for the business.
The economics of these sites are daunting for most businesses. First, you have to provide at least of 50% discount off retail, and then you have to give about half of the revenue to the deal site. So, if you sell something for $100 normally, you must offer it to at no more than $50 and then give about $25 for each item sold - resulting in the business receiving about 25% of normal retail price. If you sell 500 items from the deal site, you've just sold $50,000 worth of your products/services for about $12,000. Your margins have to be pretty good to make this work, and most of the cases these services are being sold at a loss. So, how can a business make it work? Usually the only way is to upsell the customer to a more profitable product/service that provides real value to the customer.
Here are some ideas about how to make it work. First, go into it with your eyes wide open knowing the economic impact of what you are doing - selling your product/service for 25 cents on the dollar. Next, figure out the easiest way to create more revenue from the customer interaction that truly adds value for your customer. If you are a restaurant, you probably want to offer something like $50 of food for $25, and then sell appetizers, desserts and drinks to re-capture lost margin dollars. Plus, give the customer such an awesome experience that he/she wants to come back and perhaps even a coupon for their next visit. If you are a painter for instance, you may want to offer 50% off painting one room and when you arrange the job with the customer offer a small discount on painting another room. Use this upsell opportunity to re-capture some of the lost margin on the original deal. And always, always, always - make the customer experience so great that you create a raving fan and repeat business at regular price.
Selling 25 cents on the dollar results in a lot of lost margin dollars but if you are creative about how you position the deal and turn the customer into a raving fan, you can make those daily deal sites work for your business.