Best practices for businesses considering Groupon, LivingSocial or Google Offers

I speak to a lot of businesses about their daily deals experiences. Some have been good and others have been had. Here’s a summary of how to make the best of your daily deals experience.

I’ll be updating this post from time to time as I get more feedback. Please check back occasionally to see new ideas. You can also follow me on Twitter.

Before you agree to a deal

  • Make sure deals is right for you. The marketing around daily deals implies that it’s an honor to be selected and that you should be thankful for the opportunity. It’s the “Who’s Who” model — flattery works. It’s not an honor. You should analyze the numbers and make sure that the deals work for your business. Talk to other similar businesses about their experiences. Some of the key questions to ask: How many of the customers were your existing customers? How big was the initial demand? Did you have to staff up extra? Did people buy more than the deal value? Did new deal customers come back? If the deals were redeemed mostly by existing customers or new customers didn’t come back, those are bad signs. Only run a deal because you have done analysis and realized that it’s good for your business, not because everyone is excited about Groupon. I talked to one merchant who ran a Groupon because a restaurant across the street was full after it ran a Groupon. She ended up losing $10,000 on her deal.
  • Don’t believe statistics from your sales rep. The reality is that none of the deal companies have the technology to accurately track the most important metrics to the business. You’ll hear stats like 95% of merchants are satisfied. 98% spend more than the deal voucher. You should ignore them. 95% of people wouldn’t agree that the Pope is Catholic. On a $20 Groupon, they might spend $20.05. Yes, it’s more than the voucher, but that extra nickel doesn’t help you.
  • Stick to your guns. Your sales rep might tell you that in order for your deal to be selected to run that you must make your offer more generous. By, for example, increasing the cap or raising the value of your voucher or increasing the share to the deal company or removing restrictions on a deal. This is akin to the car salesman telling you that his manager won’t let him do the deal. If you’ve worked out your numbers and know what your comfortable with, stick with them. “Losing” the opportunity to be featured is better than making a bad business decision.
  • Make sure you understand the terms. The daily deal is not some Internet magic; it’s a complex financial instrument. The dynamics are very different from buying a newspaper or magazine ad. Give it the same amount of thought as if you were taking a $15,000 loan. See my analysis of the Groupon merchant agreement.

Between contract date and when your offer runs

  • Prepare your strategy for how you’ll engage deal customers. The goal of running deals is to introduce your product to new customers and get them to come back. Get business cards printed up with your Twitter and Facebook addresses.
  • Train your staff. Let people know that there will be a big crush of new customers and make sure to schedule appropriately.
  • Order extra supplies. You don’t want to run out of food or other supplies on the day the deal runs.
  • Don’t tweet or Facebook about your deal. The goal is to get new customers, not to reprice existing customers. If you tweet about your deal, you’re giving the deal company free money. If you want to do something to inspire loyalty among your existing customers, offer them a better deal for not buying the Groupon. For example, if you’re offering a 50% discount and paying 50% of the balance to the deal company, you can offer your regulars 60% for coming in without a Groupon. You inspire loyalty and save money.
  • Block off space for your regulars. If you’re a service company like a spa or a nail salon, make sure to save space for your regular customers. You don’t want to spend all of your time serving discounted customers and turning away your loyal full-price customers.
  • Ask to reschedule. If the company schedules a deal to start when there’s a big event that would otherwise drive a lot of traffic to your business, ask to have the deal rescheduled. You don’t want your staff to be stretched extra thin and your potential new full-price customers waiting amid a crush of deal customers.

While the deal is running

  • Engage your new customers. When they come in, encourage them to get to know your business. This should be the start of a relationship, not just a transaction. Give them the card with your Twitter and Facebook info. Get their email address. You might even want to offer a small incentive for giving up an email address.
  • Upsell them. If you’re a restaurant, be sure to offer them wine or dessert. If you’re a spa, offer additional services. Sell them a story about your business.
  • Treat deal customers like valuable prospects and make sure your staff does, too. A common complaint I hear is that people feel like they were treated like discount customers by waitstaff. If this happens, you have defeated the whole purpose for running the deal! Your entire goal is to get people to come back. Make sure they have a great experience. If your plan is to treat deal customers poorly, you should strongly reconsider whether you want to do the deal.
  • Don’t be discouraged if your regular customers come in with deal vouchers. I know this isn’t what you wanted, but some of your regular customers will come in with a Groupon. Don’t say anything. Most people don’t understand how bad the economics are for businesses. If they ask, go ahead and tell them about the economics. Otherwise, happily accept the Groupon and be glad they came back to your business.
  • Make sure you track transactions. Unfortunately, there are unscrupulous people out there who will print out multiple copies of the deal voucher. If possible, you should use a tracking method that validates the voucher on the spot. Not only will this save you time over paper, it will save you money in fraudulent transactions. If you’ve been thinking about getting a smartphone or computer for the business, this is a great time to do it.

After the deal

  • Follow up! If you have email addresses, write to your customers. Tell them about your great events. Engage your new Twitter and Facebook followers.
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About Rakesh Agrawal

Rakesh Agrawal is an analyst focused on the intersection of local, social and mobile. He is a principal analyst at reDesign mobile. Previously, he launched local and mobile products for Microsoft and AOL. He blogs at http://blog.agrawals.org and tweets at @rakeshlobster.
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20 Responses to Best practices for businesses considering Groupon, LivingSocial or Google Offers

  1. Pingback: An analysis of the Groupon merchant agreement « reDesign

  2. Pingback: A real-life Groupon merchant agreement « reDesign

  3. breakall says:

    You make some great points! I think a lot of business are still trying to figure out of Groupon will work for them, and you’ve given them a solid guide to trying it out.

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  7. pwb says:

    Good advice mostly. But: I wouldn’t worry about letting existing customers in on the deal. They are your best customers after all. And “order extra supplies” is an understatement. They real key is “have a plan for taking advantage of the influx of customers.” Prepare to extend hours, have staff on call, create easy-to-sell product bundles for Groupon-ers, be prepared to open an additional POS, etc.

  8. Pingback: Roundup of my Groupon and daily deals coverage « reDesign mobile

  9. Sheryl says:

    Awesome article and very well said! Been preaching this to my clients for a year.

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  15. Rocky- I’ve been researching doing a deal with Groupon or LivingSocial for about a week now and read all of your articles. The merchant agreement from Groupon seems absolutely ludicrous to sign with one liability after another. How are we supposed to get comfortable with it/would you?

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  19. Lazare says:

    your comments on treating the new voucher people like newborns but i know that living social or groupon are not good for small restaurants and other small businesses, if you already have your customer base these new people w/vouchers are ruthless!!! they don’t spend over the voucher amount, how do you terminate a contract with these people? they are killing us. thank you

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