At Smart Shopper naturally we wish to earn or keep your business but regardless, it is vital that you read this information so that you can make the right decision for your business.
Business Owners – Beware of “Daily Deal” or Groupon type web companies offering free ads.
These companies pitch online/email ad campaigns utilizing discount certificates, attempting to promote your business. A few “Daily Deal” companies are already operating in Central Oregon and others are likely to follow. We believe the “Daily Deal” type ad campaign doesn’t add-up for most small businesses. Please read on to learn how they work.
THE LURE OF A FREE AD…Do you remember the old adage: “Nothing is free”? These ad campaigns can be very costly to businesses.
The “Daily Deal” web promoter entices a business owner with a free ad. The ad is sent via email to a list of consumers from their database. A typical promotion reads like this:
“50% OFF! $50 Gift Certificate for $25”
The “Daily Deal” promoter sends an email with a discount certificate offer from a participating local business, such as yours to the consumers on their list. The consumer then has the option to purchase the certificate to your business directly from the “Daily Deal” company. If they make the purchase, the consumer arrives at your store, certificate in hand, expecting $50 worth of goods or services for $25. For this, the “Daily Deal” promoter sends you a check for only $12.50, and keeps the other $12.50. This arrangement nets you, the business owner,only 25% of each sale from the promotion while the “Daily Deal” company collects an equal portion (also 25%) as their commission.*
Let’s think about this…you work your tail off to provide goods and services to your customers while the “Daily Deal” promoter sits back and collects as much as you do from every sale generated by the promotion. In effect, they become your business partner. The goal of the “Daily Deal” company is of course, to get a very large response. If this should happen, they stand to make thousands or tens of thousands of dollars from your hard work and effort…this is completely crazy! Since when does it make good business sense to share a percentage of your sales with an advertising company?
Compare this lopsided arrangement to virtually any advertising campaign where you pay a flat fee for advertising, and you gain 100% of the benefits from each customer that responds.
At Smart Shopper, we also encourage aggressive offers to attract new customers and increase visits from regulars. “So what’s the difference?” you might ask. The difference is dramatic…we charge a fixed, reasonable fee for your ad. You collect every dollar, from every customer that responds to the promotion! The example below illustrates the monumental difference:
A popular, upscale restaurant in Bend recently ran a Smart Shopper coupon, “$10 OFF Dinner for Two.” On average, at this restaurant, two people typically spend $50 for dinner, netting them $40 per redemption. The restaurant redeemed 339 coupons and collected $13,560 in sales, after the discount. The restaurant paid $575 for the ad, netting them $12,985 from the promotion.
If the same restaurant ran a typical “Daily Deal” promotion, (assuming the same redemption) they would have collected only $4,238. Please see the chart below:
|Daily Deal Co. vs. Smart Shopper Comparison|
|Based on Typical Promotions and Redemption Figures|
|Daily Deal||Smart Shopper|
|Redemptions from Promotion (# Sold)||339||339|
|Value of Goods/Services Provided by Merchant per Redemption||$50||$50|
|Total Goods/Services Provided||$16,950||$16,950|
|Discount Offered in Promotion Per Redemption|
|Daily Deal = 50% OFF||$25|
|Smart Shopper = $10 OFF||$10|
|Total of Discounted Goods & Services||$8,475||$3,390|
|Total Amount Paid by Consumers||$8,475||$13,560|
|Smart Shopper Ad Cost||$575|
|Funds (commission) Collected by Daily Deal Co.||$4,238|
|Total Net Revenue Collected by Merchant from Promotion||$4,238||$12,985|
|Additional Revenue Collected by the Merchant Smart Shopper vs. Daily Deal Co.||$8,748|
Would $8,748 make a difference to you? Does the ad still sound free??
The customer is learning to buy from the “Daily Deal” promoter, not your business. This reinforces the value of the “Daily Deal” promoter’s service, not yours. Customers should learn to make a purchase directly with you and recognize the value of your business.
“Daily Deal” emails that are not purchased, typically get deleted immediately, rendering the ad ineffective. By comparison, ads in Smart Shopper that aren’t redeemed are kept and seen repetitively by consumers for 8-10 weeks.
In the case of restaurants or any business that provides goods and services, be sure to factor in your cost of goods. When combined with the minimal revenue generated from a “Daily Deal” promotion, there is a great risk of actual losses!
It can be very difficult for business owners to sift through the countless advertising options available. When a “Daily Deal” company shows up offering free ads, business owners often sign-up quickly without carefully considering the costs, results or potential losses. Business owners typically regret this hasty decision.
Feel free to contact us if you have any questions.
It is not the intent of this letter to impugn the reputation or business practices of any “Daily Deal” advertising company. All advertising offers are different and need to be evaluated on their own merits, and you should do your own research before making any decision as to what form of advertising is best for you. However, it is the opinion of Smart Shopper that when the true costs and benefits of “Daily Deal” advertising is considered, this form of advertising simply doesn’t make economic sense for a lot of small businesses. We hope the information contained in this letter helps you make the right decision for your business.
These articles explain the pitfalls of “Daily Deal” / Groupon-Type advertising and the many flaws with the business model.
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