Whether it’s because we’re in the clutches of a recession or we just want to save money for a rainy day, the rise of deal and voucher websites in recent years has been nothing short of meteoric. One of the most high-profile of these sites, Groupon, has managed to weave itself into our lives to the extent it has almost become a synonym for the verb ‘bargain-hunt’ – much as Google has for the search engine.
While consumers are usually too wrapped up in the excitement of a deal to question why companies are flogging their wares on the cheap, it is difficult to ignore the fact that an increasing number of start-up businesses are utilising the services of a deal or voucher website to attract much needed footfall in the quieter parts of the week or for the launch of their enterprise and the crucial months that follow. Alternatively, an established company may simply have a new product or service it wants to bring to people’s attention.
When all is said and done though, making a discount or add-on service available to the public through a third-party site is merely an alternative means of advertising – isn’t it? Perhaps, but as some of the pioneers behind these sites are very eager to point out, it is a far more efficient and effective advertising channel for a business looking to keep costs low and constantly monitor its customer base. Indeed, given that the performance-based nature of the contract between the SME and deal site generally excludes any up-front payment, the initial financial gamble for the small business owner doesn’t appear quite as sizeable.
“We have all seen it where companies have gone out and spent thousands of pounds on advertising up front, without necessarily knowing if that is going to work for them,” comments Andy Nelson, national sales manager for daily deals website Dealcloud. “If it does work, can they track it and tell how many customers it brought through? Working with a deal site, they can see exactly how many customers it’s brought them and they are only going to pay for those customers they have actually gained, as well.”
And such an arrangement has endorsements straight from the horse’s mouth, as it were, with Paul Piddington, owner and managing director of the Vale of York Polo Club, offering a fairly lucid reflection on the partnership he has enjoyed with Groupon since 2011. “I am happy to pay Groupon because I am only paying them when I teach the lesson and that gets the guy in the yard, yet previously I had to pay the money for nobody in my yard.” Remarking on his past experience of placing print adverts in a specialist equine magazine, he adds: “You were talking about £2,000 worth of advertising, not knowing what you were going to get back.” Given the niche market in which Piddington operates, the value of the Groupon offer essentially lies in the fact it lets people know ‘I’m here’. It opens their eyes – and wallets – to an activity they may previously have dismissed as being in the sole preserve of royalty and millionaires. “It is this percentage game – if I can get one or two out of 100 to take up polo, then I am in business.”
Indeed, Piddington admits that while the vast majority of people who secure the Groupon deal thoroughly enjoy their experience, they probably wouldn’t return and pay the standard fare. But for him, a 1-2% rate of repeat custom is sufficient, whereas targets will be set considerably higher for SMEs in more mainstream and competitive markets.
Undoubtedly, it is here that the dynamics of the performance-based payment really begin to reveal themselves. For, as passionate as the deal site may be about assisting the growth and success of its clients, its raison d’être remains the same as any business, including the ones it treats as partners. It should thus not come as too much of a revelation that the deal site is rewarded handsomely in commission for every sale the SME makes from a deal or voucher redemption. And, while this may be a gripe for some start-ups, the majority enter into the partnership fully aware of the incentive it places on them to accept the odd knock to their margins and transform the deal user into a regular customer. Needless to say, this is only achieved by providing them with the same level of service as a full-paying patron.
“There are multiple reasons to give people a good experience but I think businesses often sell themselves short by thinking ‘I have just given out a voucher and I am trying to gain back the amount that I have spent on it’, when in reality that is not the way to look at it,” remarks Charles Eklund, head of product and business operations at LivingSocial UK and Ireland. “The reality is you have a directed audience, a footpath to your door, and we will do everything in our power to get them to your door, but once they walk through the responsibility then shifts to you, and for the same reason that you open up the business for the love of doing what you do, if you share that love with the consumer, there is a greater likelihood that they will indeed come back.”
Of course, delivering a consistent level of service should be a staple of any successful business, but it can be tested to the full by a sudden surge in footfall, which a business will often face with the initiation of a particularly popular short-term deal. Giving your team sufficient notice of the impending rush is thus fairly fundamental, according to Richard Jones, director of partner management at Groupon UK. “One of the most important things I would say to every merchant is ‘preparation, preparation, preparation’. The nature of the Groupon promotion is very exciting – it is on the platform for a few days and it generates a great deal of interest through our website, on the merchant’s website, and through their Facebook page.”
It would appear then that employing the services of a deal site is a relatively attractive proposition for an SME, so long as they have the will and resources to make it a success. Indeed, as Jones attests, the opportunity isn’t one that any business should completely overlook. “I think it is relevant to everybody – there is one thing that every single business has in common: we are all looking for new people and more footfall because that is the way you generate loyalty, you generate custom, you generate cashflow.”
However, it is by no means an automatic path to glory, and every deal site is ultimately only interested in those clients that are dedicated to the cause. “It is not supposed to be a simple ‘here’s a load of traffic and you will be profitable without any effort’,” warns Chieu Cao, co-founder of small business deals provider Huddlebuy. “That is not how we message it to our partners. It is a lot of effort on our side to sell your offers to our community but the supplier needs to be ready for what happens afterwards and have the marketing know-how and capabilities to make the most of it. It’s a limited window, so if you don’t make the most of that window, you are going to lose out.”