There have been some very interesting studies conducted recently into the world of the ‘Daily Deal’ and coupon redemption. Perhaps one of the more interesting of these was conducted by Rice University in September of last year and again in June of this year.

But…. if you’ve been tempted, have a look at something we cooked up, a daily deal calcutator 

Their research findings are a fantastic guide to any business tempted by the lure of a daily deal. Whilst many of the business running these deals are very satisfied with the outcome, many are not. There are some parts of this fairly intricate equation that businesses can influence and some are completely out of their control.

There are so many elements involved in these Daily Deal promotions that it’s really very difficult to isolate and pinpoint one or two key factors. In their September research, Rice University maintained that the two key drivers to success or failure of a Daily Deal were Employee Satisfaction and the coupons effectiveness in attracting new customers.

Employee Satisfaction is a massively important element. These promotions will (should) increase the workload of your staff or they may face extra hours. If there little in the way of recompense for the extra work, then it’s going to be an uphill struggle to succeed.

Another element that makes these promotions work is the number of new customers that return to an establishment and spend at full rates and your staff have a vital role in securing repeat customers.

However Daily Deal customers, the survey concluded, don’t tip or tip very poorly. They spend as close to the voucher value and leave. If you’re in a business where your staff work off gratuities, then these daily deals have the potential to create a few HR and satisfaction problems.

A business has some influence on the number of vouchers sold. The number of vouchers sold was seen as not having a huge impact on whether the promotion made/lost money. However, the non-financial element is that your business gets exposure to new customers that it wouldn’t normally.

Factors that increase the number of coupons sold are the redemption period and the upper limit of the number of vouchers. In terms of duration, the longer the further out the expiry date the better. It gives you the opportunity to sell more and its makes the promotion a lot more flexible. Placing an upper limit on the number of coupons available is also a factor on the numbers of vouchers sold. Placing a limit can create a bit if exclusivity and an urgency to buy. And naturally the face value and the discount will have an influence.

In their most recent survey (and it should be remembered that these were American businesses) they estimated that only 56% of the businesses using daily deals actually made money on these promotions. Why they did/didn’t make money is down to a litany of different factors and it’s something we’ll be returning to in a few days.

Encouragingly 80% of the deal users were new customers which is exactly what a business is trying to attract. New customers mean you’re not cannibalising your existing customer base in the promotion and the key here is to get as many of these new customers back to spend at full price.

Amazingly in the survey around 20% of customers didn’t redeem their voucher, even after paying for them in advance. What happens to that revenue is of particular importance to an SME and it can be the difference between profit and loss of the venture.

Firstly, the customer has no way back, their money is gone. So who palms the money? Some daily deal sites are sometimes a little loathe to part with this unredeemed voucher revenue so make sure, before you sign up to a deal site, that you know what’s going to happen that revenue. Normally the split should be same as the voucher split.

Non-Redemption rates in the order of 15% to 20% across the daily Deal sites has spurred on a massive secondary market in selling vouchers that are not going to be used. In the past customers who realised, for whatever reason, that they would not be able to take up the offer they have bought were simply burned. But now, sites like CoupRecoup allow these customers to ‘sell’ the vouchers that they are unable to use.

This new market has the potential to blow a big hole in the Daily Deal business model as the revenue for the unredeemed coupons can be the difference between success and failure of a promotion. Take that revenue away and the promotion could be sunk.

Deals of a high value and a low discount, in the region of 25% of the face value, are the deals that will be the most profitable. But the low discount flies in the face of the normal Daily Deal experience and will be resisted by the daily deal sites.

The survey found that there was little between the sites in terms of loyalty from businesses. If they used site X one day they have no problem considering using a different one another time. Some business types in the survey were very slow to try a second promotion. 43% of restaurants were willing to try again. Again a huge influence in this category could be the human element.

With only a certain amount of money around the costs of the Daily Deals has to come form somewhere. In the survey the businesss the participated said that they cut Yellow Pages spending by 27%, newspaper and magazine by 21% and direct mail by 17%.

If you’re thinking of having a look at the Daily Deal you shoud keep a few things in mind:

Will you get staff buyin?

If the staff work off tips, can something be done to compensate for the poor tipping.

What happens the un-redeemend voucher revenue – and whats the split?

Get a picture of all the costs – for example, some Daily deal sites charge 2% credit card fees on tom of the (roughly) 3% you pay already. So thats yet another 5%

Know your exact costs on the offering so you can do the maths.

Don’t be too quick to discount deeply. Think of the reptutation side of that deal for the business.

Shop around. Dont accept a 50%. If one site won’t play ball, another will.

Work hard on getting new customers in and back.

Without turning the screws, try and get some incramental revenue for the voucher customes

Make sure you can handle the volume. There will be a ‘rush’ as the expiry date nears.