Friday, June 17, 2011

Local Business Merchants Warming up to Daily Deals

Daily deals on the rise?

Small business owners are definitely interested in trying “daily deals”, but few have actually taken the plunge. Despite a plethora of daily deals services, from the big pure-play companies Groupon and LivingSocial, to Facebook Deals, Google Offers, and dozens of other local alternatives, only 9% of small business owners have offered a daily deal via one of these services. This finding is part of the most recent quarterly Merchant Confidence Index survey of nearly 5,000 local business owners across the U.S., published by MerchantCircle.

However, merchants are warming up to the idea of using daily deals on a repeat basis – provided they find the right partners to make these offers effective. According to the Merchant Confidence Index, 77% of merchants who have tried daily deals said they would be willing to offer another daily deal in the future. Just three months earlier, only 50% of merchants who had tried deals said they wanted to offer another one.

This rise in “deal confidence” shows that merchants are becoming savvier with daily deal offerings – finding the right products, price points, and offers to acquire customers at an acceptable cost. Of those merchants willing to offer another deal, 58% cited effective customer acquisition as the reason to try again, while 30% said a favorable deal structure was the reason. Just 24% said profitability was a driver in offering a repeat deal.

Unfortunately, many merchants continue to be disappointed with the results of the daily deal offerings. Among those who wouldn't offer another daily deal, 42% said that it was not effective in customer acquisition, 25% said it was too costly, and 24% said they lost money.  Due to the high costs associated with daily deals via big sites like Groupon and Living Social (which take upwards of 50% of all proceeds on already discounted sales) many merchants feel they cannot “afford” to do them.

Even though less than 10% of small businesses have ever offered a daily deal, it’s not for lack of aggressive sales and marketing efforts on the part of big deals sites. More than a third of respondents who offered a daily deal did so after being contacted by a sales rep (34%) or seeing an ad for the service (31%).

Daily deals may feel omnipresent – what with the number of “deals” that land in most peoples’ inboxes daily and the recent news of Groupon’s proposed mega-IPO topping headlines – but the reality is only 9% of merchants have ever offered one. That may change as more competitively-priced deals partners enter the space. New offerings from Google and Facebook are catching on quickly with small business owners and may take a bite out of Groupon and LivingSocial’s businesses.

The Merchant Confidence Index shows that 52% of small business owners are considering using either Facebook Deals and Google Offers, citing their familiarity with these two mega-brands as the main incentive to choose them over competitors. Other reasons for choosing Facebook Deals include larger audience size (26%) and better local targeting (21%) compared to Groupon, LivingSocial, and other pure-play daily deal competitors. Those merchants likely to use Google Offers cited larger audience size (42%) and Google's brand reputation (34%) as top reasons for preferring Google.

Whether you run a hair salon, a dog walking service, a restaurant, a gym, or any other small business,  the reality is most merchants are working with very small marketing budgets. Daily deals may get new customers in the door, but at what price? With consumers reaching daily-deal overload, many people use the coupons to visit a business one time, then move onto another offer – never becoming a regular customer.

The draw to try Facebook Deals and Google Offers is not at all surprising. Because many merchants already buy Google ads and use Facebook, testing the daily deal waters with these familiar giants seems like, familiar one-stop shopping for what could otherwise feel like a risky expenditure of limited marketing resources.

However, unless Facebook Deals and Google Offers address some of the lingering concerns merchants have about daily deal services – high costs and few repeat customers – merchants may use them a few times, but not return. After all, small business owners are driven by one goal: grow their businesses profitably and sustainably. They don’t have time for gimmick marketing that doesn’t deliver.