Should you allocate your limited marketing budget towards these “social deals”?

It probably didn’t start with Groupon but they are possibly the best known in the business for their deals. Since then these deal sites have been springing up in every niche and market conceivable: Scoopon, Living Social, AlltheDeals, Cudo, Shareon, DealsDirect…… (if I wanted to compile an exhaustive list I’d have to update this post every hour) . So, this post isn’t about whether their respective business models are sustainable but whether if your business should jump into this latest craze.

To start with – whether social deals are suitable or not would depend on your particular business- your clients, your competitors, your industry. Let us consider the general sales pitch of the typical social deals provider:

Stating the obvious: as part of a promotion mix – price is always (and always has been) the most powerful way to drive sales. Social deals sites allows your business to extend your reach beyond your standard marketing database of clients and potential clients. These newly acquired clients can be a source of online advocates to build awareness for your brands and/or products. They are also a great way to deploy some of your excess capacity.

Depending on your selected partner, they offer different models – the open to all deals: limited by date, time, volume or variations of the above.  So should you go ahead? Which option should you select?

Things to consider…

To be eligible to be listed on these deals sites, a substantial discount needs to be on offer. These deep discounts can destroy your margins making them unsustainable in the longer-run. An analysis should be done not based on revenue but profit margin per customer. Do not allow your clients to be come addicted to discounts: it goes without saying that they can never be profitable and can potentially ruin your brand value as hardly anyone will pay full price again. This “discount addiction” should be avoided at all cost.

Deal seekers are also very different from clients acquired through organic means. Even if they did get enjoyment and utility from your products/services, they typically will not be converted into a regular, full-paying customer.  They are unlikely to return without another deal and if you don’t do a deal, they’d most likely flock to the next deal. In low-margin, client-facing businesses such as restaurants, the sudden influx of traffic might ruin the experience for your regular, full-paying customers. As word gets out, your long-time customers too would be hunting (in some cases demanding) your next discount.

Before proceeding you must be clear about what your objectives are for this deals promotion. Corresponding strategies must be implemented to facilitate these objectives. The objective should be clear in throughout your marketing.

More sophisticated providers offer more customized strategies, for example: time-limited, one-off special models that press buyers into earning discounts by aggregating themselves into a single transaction (co-buy).This places a limit on volumes and time-frame that alleviates the pressure on your business for ever deepening discounts. Better still, some offer facilities and access to their database to target specific client groups suitable for your business.

Social deals websites can be a great tool of wielded correctly. In most cases, it is not advisable to simply offer discounts.

Yes it most likely will get clients coming through but the effect is likely to wear off as soon as the promotion on offer is closed. Discounts should only be used to lure customers to your products and once they are there- you should have an effective strategy to mount a convincing case that they should keep coming back for more.