It’s natural for consumers to expect to apply their deal vouchers across both food and drinks in restaurant deals. But, for now, it’s perhaps more prudent to proceed with caution with including alcohol in deals, and focus on the use of deals with food items only.
A recent story reported in Boston.com highlights a new Fine Print issue in Daily Deals. It appears that the Massachusetts Alcoholic Beverages Control Commission has weighed in and challenged Daily Deals that offer drinks, as a violation of the state’s “happy hour” regulation, that essentially prohibits selling drinks to anyone below the prices available to the general public.
Daily Deals present a unique set of issues regarding consumer redemption rights and merchant obligations. While a Daily Deal Voucher is a new instrument, leading vendors (notably, GroupOn) assume the most stringent “worst case” scenario, treating a Daily Deal as the equivalent to a Gift Card. This article explores the implications of these regulations.
This informative guest post is from Seth Gardenswartz, VP of Business Development and General Counsel for SpaBoom, a leading marketing solution provider to Spas, Salons and Restaurants.
An often cited problem with Daily Deals it the heavy traffic effects that can overwhelm staff, and lead to an inferior customer experience. Consumers increasingly seem to be shopping via daily deals and buying for future consumption, creating a new “desk drawer” of pre-purchased products/service.
What are the redemption patterns of Daily Deals, and how is the consumption pattern trending? What are the real “breakage rates” – vouchers left unclaimed on expiration of the promotional offer?
by Benjamin G. Edelman, Sonia Jaffe, and Scott Duke Kominers
[Reprinted for our readers, from HBR Blogs with author's permission.]
Hundreds of websites like Groupon, LivingSocial, Eversave, and BuyWithMe sell discount vouchers for services ranging from restaurant meals and museum visits to spa treatments and skydiving. Best known is Chicago-based Groupon: although only two years old, Groupon touts a ten-digit valuation and purportedly rejected a $6 billion acquisition offer from Google.
To consumers, discount vouchers promise substantial savings — often 50% or more. To merchants, discount vouchers offer possible opportunities for price discrimination, exposure to new customers, online marketing, and “buzz.”
Different business categories have different issues when it comes to making smart use of Daily Deals. We’ve followed industry-specific rants and raves for some time and have seen that the deal math, return behavior marketing, and service management issues can vary significantly. Consider the difference between carpet cleaning and fitness classes, or between restaurants and retail boutiques.
Copy writing for a Daily Deal ranges widely, from elaborate descriptions about the business penned by hip urban writers to bare bones, just the facts ma’am, descriptions. I’ve even seen copy writing labeled a “secret sauce” ingredient for Daily Deal success.
The question is, how important is it, really?
Perhaps the biggest unknown going into a new Daily Deal campaign is the rate at which you will succeed in converting the coupon visitor into a returning customer. Some evidence suggests this can be the single biggest problem in the viability of Daily Deals. The fact is, at one level, the goal of the Daily Deal provider is somewhat competitive to your goals. Akin to a Tour Bus, the Deal provider aims to channel their consumers from deal to deal as frequently as possible. Conversion rates are critical to the value you derive from any Loss Leader promotion!
The Deal Purchaser List
Most Daily Deal providers do not share the contact information of the consumers who have purchased the voucher. While the name of the consumer may be shared for coupon redemption management, the business will not normally get contact information. Essentially you are “renting their list” as part of the service, and it’s your job to convert their consumers into return visits.
Daily Deals have skyrocketed in consumer appeal on the backs of a deep discounting formula by local businesses, in exchange for an impressive flow of new customers and a risk-free ad model. Most Daily Deal providers require a discount of 50% or more, in order to get the consumer attention.
When you cut prices this deeply, the Deal Math really matters!
We’ve organized the Math discussion into two parts. Part One (below) discusses the deal event itself – helping you assess the financial impact of the customers visiting with the Daily Deal voucher. Part Two then broadens to other things that factor into your overall Deal evaluation, including return visits and other offsetting costs and benefits.
There are important other factors that should weigh into your overall equation, beyond just the direct effect of the deal on your traffic and near-term margin:
1. A Daily Deal can allow you to reduce other marketing/ad spending.
To the extent you actually lower your normal advertising spending (because the DD campaign brought you as many leads as you wanted), this cost saving is a legitimate offset to your Deal Math. The caution often made, however, is that while this makes sense on paper, it is not always easy to “turn off” media spend temporarily, and there can be risk to brand development when media spending is curtailed.