You have probably noticed that there are a number of “Daily Deal” companies like Treat Me, Grab One, etc. They all heavily discount products or services (usually 50%+) available for a 12 or 24 hour period.
All of these websites have a significant number of email subscribers so it is an easy way to gain access to a large number of potential customers quickly, and can be a tempting way to increase business.
An article I recently came across "The Parable of the Cobbler" sums up the pitfalls very well.
Here are a few things the cobbler and yourself should consider before trying this type of selling.
1. Do you still have a margin?
After giving a 50% discount off your product and then a further commission to the website (up to 20%), can you still make profit off the sale?
Calculation:
Retail Value of your product $100
Less 50% discount $50
$50
Less 20% commission $10
Sale Value = $40
Margins have to be very good to still make a profit after this type of discounting. There are some businesses this model will fit, like cafes, hairdressers, mechanics etc, where margins are high and there is also the opportunity to introduce “add on sales” to the customer after the original purchase.
2. Can you turn them into a lifetime customer?
When marketing to new customers, by the time you take into account acquisition costs including advertising, marketing, discounting etc, it is usually not until the second sale that you start to make money off this new customer. The difficulty is that most of these coupon buyers are bargain hunters and will be looking for a new bargain tomorrow - most are not likely to be a long term customer. (Note: There are always things you can do to ensure that a percentage of these become raving fans of your business and will stay, but that is more than we have time to cover in this article).
3. If you discount, will you still be able to get the full price again?
Discounting is a strategy that you do not want to over-use. The danger is that if used too often or regularly you are training your customers not to buy off you until you have a sale. There are many companies that fall into that trap. Retailers like Kathmandu and Briscoes - because they have such large and regular sales, many now perceive their normal price to be too expensive, and will just wait until the next sale. Once customers are thinking this way, it is almost impossible to change it.
So in summary, make sure it fits with your pricing and marketing strategy in the longer term. Make sure it will attract the right customers and at the right price for you!
All of these websites have a significant number of email subscribers so it is an easy way to gain access to a large number of potential customers quickly, and can be a tempting way to increase business.
An article I recently came across "The Parable of the Cobbler" sums up the pitfalls very well.
Here are a few things the cobbler and yourself should consider before trying this type of selling.
1. Do you still have a margin?
After giving a 50% discount off your product and then a further commission to the website (up to 20%), can you still make profit off the sale?
Calculation:
Retail Value of your product $100
Less 50% discount $50
$50
Less 20% commission $10
Sale Value = $40
Margins have to be very good to still make a profit after this type of discounting. There are some businesses this model will fit, like cafes, hairdressers, mechanics etc, where margins are high and there is also the opportunity to introduce “add on sales” to the customer after the original purchase.
2. Can you turn them into a lifetime customer?
When marketing to new customers, by the time you take into account acquisition costs including advertising, marketing, discounting etc, it is usually not until the second sale that you start to make money off this new customer. The difficulty is that most of these coupon buyers are bargain hunters and will be looking for a new bargain tomorrow - most are not likely to be a long term customer. (Note: There are always things you can do to ensure that a percentage of these become raving fans of your business and will stay, but that is more than we have time to cover in this article).
3. If you discount, will you still be able to get the full price again?
Discounting is a strategy that you do not want to over-use. The danger is that if used too often or regularly you are training your customers not to buy off you until you have a sale. There are many companies that fall into that trap. Retailers like Kathmandu and Briscoes - because they have such large and regular sales, many now perceive their normal price to be too expensive, and will just wait until the next sale. Once customers are thinking this way, it is almost impossible to change it.
So in summary, make sure it fits with your pricing and marketing strategy in the longer term. Make sure it will attract the right customers and at the right price for you!
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