Deal-of-the-Day Services are Greeted with Enthusiasm, Caution
Local businesses are investing increasingly in social commerce.
Mike Hunter didn’t know quite what to expect. He had never used a service like Today’s Deal to promote his business. The online initiative, sponsored by stltoday.com was designed to bring in more customers but would it work for go-kart racing?
Some 549 sales later, Hunter, owner of Boschertown Grand Prix Racing Go-Karts, was a believer.
“We were surprised,” he said. “We have a long-time name here in Boschertown and St. Louis. We’ve been here since 1957 so I think people recognize us.”
Yet recognition went up.
“We felt good about it,” he added.
From Groupon to Living Social to an array of similar local operations, a lot of people are feeling good about such “deal-of-the-day” platforms. Quickly becoming the biggest ecommerce phenomenon since the advent of PayPal, an ever increasing number of services are aiming to act as a conduit between businesses who want increased traffic with no upfront costs and consumers looking for a bargain.
The methodology is simple enough. Generally, the retailer pays nothing but simply offers a discount coupon on the provider’s website. Subscribers can purchase and download the voucher and the provider takes a percentage of the sale while passing the rest to the retailer.
It’s a nice idea. But how effective is it?
Plenty, said Barbara Ogden, co-owner of Vivian’s Vineyards on Second Street.
“We’re very pleased with the response we’ve gotten from them,” she said. “This is a great marketing tool.”
In February, the small Frenchtown eatery did a promotion through stltoday.com offering $25 of food for $11 and sold more than 200. A post-Thanksgiving effort with Groupon offering $30 for $14 netted three times that figure, she said.
“Most of the people with Groupon would come in and spend on average between $60 and $75. Then they’d use the $30 coupon and pay the difference in cash,” said Ogden. “You do have some people who come in and spend just the $30 or the $25 but they are the minority.”
Miracle Kickham, a Dardenne Prairie photographer who does a great deal of work in the St. Charles area, put a voucher on Urban Dealight to promote her services.
“I think it worked great,” she said. “I didn’t have to put any money out and I got 15 new clients.”
Kickham said she’s on the schedule again for fall.
“They are people I might not have normally reached,” she said. “I’ve had clients drive in from Columbia. I’ve got one coming in this week from Illinois.”
Others are optimistic but sound a note of caution. Craig Uttendorf, owner of Gingham’s Restaurant on Highway 94, said that when he used a social commerce site the response rate was excellent. The establishment sold more than 2,300 vouchers offering $22 worth of food for $11.
Still, it was a mixed blessing. The idea had been to boost traffic at the new Ellisville location yet some of the coupons were redeemed in St. Charles, where the restaurant is well-known and already sees solid sales.
“When you have regular customers who are going to eat there anyway and suddenly you are feeding them at half price, I don’t know if that’s always a beneficial thing for your business,” he said. “The jury is still out, I think.”
Uttendorf said that at the present time, there are no plans to do another deal-of-the-day in the future and his establishment is concentrating on other methods of promotion such as rewards programs to bolster customer loyalty.
He said he thinks the voucher did help bring visibility to the new location so it was a success but he sometimes hears doubts from other restaurant owners about the efficacy of social commerce services and thinks they may work better for some enterprises than for others.
“With a service business where there’s not a fixed cost I think that might be a different situation,” he said.
Tom O’Keefe, marketing manager at St. Charles County Family Arena, said some operations enjoy solid results with social commerce initiatives but businesses should realize they are not a panacea and such efforts must be undertaken with realistic expectations.
“What I think they are starting to realize is that a good portion of people are just chasing the deal and they don’t end up becoming repeat customers,” he said. “There are a lot of variables and new business owners don’t always realize that large traffic doesn’t always equal a lot of money.”
O’Keefe’s organization has used Living Social and Today’s Deal, often to promote events which either weren’t selling well or whose sales had plateaued. He feels such promotions can be effective but he cautioned that owners should only use them to advance specific marketing objectives such as building visibility for a startup or new location, promoting a new product or service or boosting sales during a slow time of year.
“I really look at it as advertising and marketing more than to drive sales,” he said. “Like any piece of advertising, you have to see if it is effective for you.”
He said some businesses jump into a social commerce arrangement without careful consideration and can suffer devastating losses. O’Keefe advises owners to put restrictions on vouchers where possible to avoid possible open-ended commitments of time or resources and said they should remember to figure in the percentage of each sale that the provider is taking when calculating costs.
It’s also a good idea to look at the economics of a particular business and consider how much the consumer might spend on a given visit in relation to the discount given.
“A $25 gift certificate to Dairy Queen is a lot different than a $25 gift certificate to Tony’s,” he said.
Scott Tate, president and CEO of the St. Charles Chamber of Commerce said such concepts present interesting possibilities.
The chamber recently started its own service through Try It Local which sets up such initiatives with chambers all over the country. He said the highly regional nature, ability to place restrictions and low percentage cost make the chamber an attractive option for businesses, which receive 70 percent of sales through the service, a higher figure than with some services.
“We feel that because ours is more localized, people are going to be more likely to draw potential new regular customers,” he said. “We’re really focused more on St. Charles City and County.”
He said the businesses that do best tend to be service, retail and entertainment enterprises that people use regularly. One-time or less commonly employed services such as lawyers or tow-truck drivers may find it more challenging to derive a benefit.
“Some people also just don’t like to provide a discount on their product or service,” he said.
For others however, Tate thinks it can be a valuable tool.
“Companies have to look at these kinds of deals as part of their bigger picture marketing plan or strategy,” he said. “Allocate money for the program and look at it not as a loss but as a marketing expense.”