Recently the grandaddy of daily deal sites GroupOn completed it’s IPO. It achieved remarkable growth by offering city based daily deals that typically gave discounts of well over 50%.
Many business owners worldwide jumped at the chance of getting guaranteed clients without having to put money down upfront. On the face of it, when you compare it to other forms of advertising, and for the purposes of this post Google Adwords, it seems a no brainer. However, I believe that this is most definitely not the case.
There are a number of issues with daily deal sites that you must consider.
1) People are customers of the daily deal site and not your business. They are more likely to buy the next deal in your space than return to your shop or salon.
2) They cheapen your value proposition. If you can offer 70% discounts surely your offering was not worth the price you originally charged for it. Would you pay three times the price for something you previously bought on a daily deal?
3) Aggressive up-selling is necessary to turn a profit. Because daily deal customers are less likely to return, you must apply aggressive tactics to turn your loss on the deal into a profit by selling other items etc.
4) You may have received a lump sum of tens of thousands of euro but will this even cover your staff costs to service the deals?
5) What about your current loyal customers. How will they react to others getting a deal. How would they feel knowing that you can discount 70% on the products they buy every day/week?
Google Adwords is different. There are risks if you don’t know what you are doing. It’s only one component in an overall marketing strategy. It takes cash upfront to make it work. It’s also a gradual process where you improve your conversion rate and therefore the performance of the AdWords campaign incrementally.
Here are some issues that business owners must consider when opting for Google AdWords.
1) AdWords requires Landing Page Optimisation (LPO) to work. This is something that most business owners don’t factor into their decision making. Without LPO, AdWords can cost you big time. On the other hand, with LPO, AdWords can be extremely profitable. Going from a conversion of 1% to 2% doubles your sales and can turn a loss making website into the biggest profit centre of your business. This requires statistical analysis of all elements of your landing pages along with A/B testings.
2) You need to follow up with a sales script. The Celtic Tiger stunted the typical Irish business owner’s ability to sell. Selling was too easy during that time, and the vast majority of successful businesses didn’t need to work on their sales scripts. Times have changed. Businesses using Pay Per Click (PPC) platforms like AdWords need to develop effective sales scripts.
3) You can build your own list. Daily Deal sites are just marketing lists that get an email everyday about a cheap offer. Why not get build your own list so you can control the conversation with your customers? This will help you get repeat purchases
4) You can position your business at the quality end of the market. This is something you can’t do with daily deal sites. Actions speak louder than words and when you discount heavily on daily deal sites nobody will take the quality of your product seriously.
Overall Google AdWords is what I advocate businesses to spend their advertising budget on. Those that argue that there is no cost to daily deals are not analysing all the facts. Businesses have to pay for staff and materials to service these deals. If there is no upsell your accounts for year end will show a loss for the deals. Remember, that if you offer a 70% discount you are likely just to get 15% of your typical sales price (daily deal sites usually take 50% of the 30% discount price).
I realise that it does take a lot of work to make an AdWords campaign profitable and giving great returns. However, it’s worth it in the long term and over time the benefits of such a campaign far outweigh the benefits of a daily deal site.
I am interested in hearing what you think.