discount services can be risky for small businesses

The market is saturated with offers and discounts – and consumers are often counting their pennies and scrutinising the various offers before choosing where to spend their money. What it comes down to is where they can get the best deal. So what does that mean for your business?

For many small businesses, competing on price can be detrimental. Groupon is possibly the best known discount-operator in the field – but it may not be the best option for small businesses with tighter margins, smaller footfall and fewer resources. The customers you get at a high cost may never return.

There are many assumptions about Groupon out there – here are some hard facts:

To get your business on their site, you must have an offer with at least 50% off the price. On top of this, Groupon takes 50% of the deal value. So if you discount an item from £100 pounds to £49, you end up with as little as £24.50. Stats have shown that only between 8-20% of customers acquired through a deal return, so you may be paying a high price for a single-visit customer.

It is 7 times easier to make an existing customer return, than to grab a customer from nowhere – in terms of effort, and more importantly perhaps – cost. Add to that – regular customers are less price-sensitive, spend an average of 46% more, and give you high quality referrals. So before choosing to invest in people you have never seen before, you might want to consider the option of focusing on the customers you already have.

 A massive surge in savvy customers – can you handle it?

Groupon, wowcher and the like can give you great exposure. If you are prepared for a surge it can work really well. Your brand gets the attention of many, and a fraction of those may even become regular customers. The risk with a huge surge is that you may get more customers than your business can handle; leaving some customers frustrated and unhappy for one reason or another. They can’t get a table, you are sold out of the dish you are promoting or the item of clothing you have reduced, or your staff is simply unable to tend to everyone. Having unhappy customers venting on social media is almost never good, as it leaves unerasable traces of bad marketing for you.

Using services like these is an approach that should be considered carefully for other reasons too. If you are a high-end brand – there is the risk that selling oneself cheap(er) which can be damaging your brand – customers may like you precisely because you are a more exclusive option. You also risk that your regular customers get angry because they don’t get access to this amazing offer (wouldn’t you, if your regular restaurant cut prices for newcomers but not regulars like yourself?).

Before you decide..

Take your time to consider all aspects – cost and value, pros and cons. If you prepare well, if you have the flexibility in your finances to take a cut that size, and perhaps implement some sort of incentive for your newly acquired customers to come back to you, such as a loyalty program, chances are you will get something out of it. There are plenty of solutions out there, ours included. You can find out more about Loyalzoo’s loyalty solution here.