Daily Deals – Are they effective for SMBs?

There’s been an abundance of media attention around daily deals sites like Groupon and Living Social over the past several months. Sadly, much of the discussion has been about their business valuation with Groupon stock dropping approximately 80 percent since its IPO in November 2011 and Living Social, a privately held company in which Amazon has 29 percent ownership, posting net losses of nearly $100 million. With an onslaught of new players, like Fab.com, some Wall Street analysts even predict that the end of daily deal sites may be nearing. Regardless of the long-term fait, there is no denying that consumers today value and take advantage of deals. According to a recent report from BIA/Kelsey, annual sales from deals (daily deals, instant deals and flash sales) are expected to eclipse $4 billion by 2015, up from just $873 million in 2010 – a 35 percent annual growth rate.

With a pressing need to gear up for the holiday season, increased online and mobile competition and a consumer landscape that has come to expect deals and purchasing incentives, SMBs need to develop their marketing strategies today to drive incremental business this coming holiday season, leaving many with the challenge of evaluating the potential of offering a daily deal. The irony is that while one business may enjoy great success with a daily deal, another may find that the investment yields no return.

Recent research indicates that, on average, daily deals are sustainable for approximately one-third of businesses and there are definitive metrics based on the type of business you own, with the highest success percentages for photographers (75 percent), health and fitness (69.3 percent), retailers (50 percent), and restaurants and bars (44.2 percent). While less than 50 percent of businesses running their first deal report profitable promotions, 75 percent of those running seven or more details reported and overall positive ROI. And, size does matter, with research indicating that SMBs with annual revenue of less than $400K enjoyed a 41 percent retention rate on customers acquired via a daily deal, while those with more revenue retained only 15 percent.

In addition to driving new business, daily deals can also be a great way to keep existing customers coming back. Of course, the question always lies around whether or not they would have returned without the deal or incentive and that data may be hard to quantify. It all circles back to the marketing and advertising strategy a SMB employs and what other value-added programs they can combine, like loyalty and reward, to ensure that any and all acquired customers have an incentive to return.