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Daily Deals - What is the Point?

Written by Rachel Robertson on May 28th, 2015.      7 comments

What do we know about running a successful business? For me running a successful business relies on many things and daily deals seem to go against everything that would make a business do well.
 
So what do these deals do? Yes they attract a lot of interest in the business and a lot of new clients, but what do you as the owner get out of it? Firstly from a financial point of view, it is very hard to get a break even point let alone make a profit.
Most daily deal companies will take around a 25% cut of the offer price, this offer price has already been heavily discounted to attract interest and buyers. From what I have seen most clinics and salons are discounting at least 50%, some I have even seen are discounting their services by a huge 75%.  
 
daily deals pic
Lets say for example you sell a facial that is usually $100, even to discount it by 50% (which seems to be the minimum) that leaves clients paying $50 for a facial, the daily deal company takes 25% (which is $12.50) and you are left with $37.50. With that you need to pay such as staff wages, product usage, general running expenses like rent, power, phone, insurance.  Break even point for many clinics or salons is around $1.17 - $1.70 per minute. Lets take the smaller number in this case, at $1.17 per minute for a 60min facial the break even point is $70.20 – let alone $102 at $1.70 per minute. But you only have $37.50 left, wow you have run at a huge loss.
 
Ok, so some people would say that you are getting new clients so it is worth it. But what kind of clients are you attracting? What is your target market? To be running a successful business you want to be attracting A-Grade clients – from a Beauty Therapy point of view this is a client that has regular facial treatments, as well as other beauty services, purchases retail and rebooks every 4 weeks. You build a repoir with these clients, loyalty and trust. That is why they return. The majority of clients purchasing daily deal offers do not fit into this mold. They are purchasing a discounted service because it is discounted, not because they value your service or what you offer. The retention rate is very low, clients will have the service and move onto the next place offering a deal.
 
The other thing I have seen happen is clinics lose some of their great loyal, regular clients. For one, the regular client that always pays full price for their service is irritated that they haven’t been offered a discount for their loyalty. Also unless the clinic is putting a small cap on the amount of vouchers that are sold, regular clients struggle to get their appointments as daily deal clients are filling up the book. There was a case here in NZ last year where a clinic sold 450 deals for a facial, the expiry on these were 3 months, so in 3 months this clinic needed to fit in another 450 clients on top of their normal clientele. The owner ended up hiring temp staff to keep up with appointments, lost regular clients as they could not get their usual time, and the discount clients didn’t rebook as the temp staff were not trained to a high standard. So all in all they lost good clients, paid out more in wages, lost money on each treatment and got a bad reputation because the service was so bad. What a huge mistake.
 
I have also seen new businesses offering these deals, I guess to get their business name out there and hoping to retain some clients. Is this really how you want to start out in business, by de-valuing your services and attracting the wrong kind of client?
 
Businesses in financial trouble also seem to think this is a good idea, to get a quick cash injection. But as I have shown you will almost always ran at a loss, interestingly enough I have watched clinics offer daily deals and then a few months later close their doors.
 
The other side of the story is the effect it is having on the industry. For those of us running successful businesses, who value ourselves and our businesses by not discounting come under attack for not being competitive with pricing. I think the consumer has got so used to having a multitude of cheap options that it has become standard to not want to pay full price. I regularly get asked do we offer any discounts? I always reply that we do not offer discounts, instead we reward our regular and valued clients.

So this leaves me with the question … If daily deals are bad for business why do them?

Article supplied by Rachel Robertson
Creator and Director - Prologic Skin Care

Phone: 0275 647021
Email: info@prologicskincare.co.nz

For information on Prologic visit: www.prologicskincare.co.nz

 
why would you pic(copy)

 

Topics: Business
 

7 Comments

Amber says ...
Awesome article, great breakdown and I totally agree with you. It makes the little guys struggle even more when daily deals are around :(
Carleen says ...
Hi Rachel, I think some of the points you put across are quite right although I am a small, unknown business and doing a deal I found people who came to me said it was great I did the deal because they were looking for a salon that did my services in my area and it was only a discount of 30% off. The companies do take a hefty percentage I agree with you there but it's FREE advertising and you get 1000s of subscribers who are potential clients. I think for a new business who does not have a lot of money to spend on advertising it's a good way to help but I would never continue with daily deals as some but not all have that expectation of continued discounts or deals.
Trisha says ...
Carleen, I'm sorry but your daily deal advertising was not "free" as you put it. It cost you hundreds and hundreds of dollars in lost productivity. That same money could have been put into your own marketing and advertising to attract the kind of clientele you actually want and need to build a strong successful business. Meanwhile you inadvertently effect the whole industry by sending the message to consumers that we can actually afford to do these services at such a low price and the rest of the time we "must be making huge profits". I understand the lure, it all seems too easy, just let these daily deal guys put the message out there and it'll help "put you on the map" so to speak. Up until a few years ago, most of us managed to start up business's and get our name out there without theses sites, so I think these companies are preying on vulnerable business owners and have many convinced it's the best or only way to go. There definately are other ways and I urge all business owners to really think this through and ask yourself, is this truly the best and only way to promote my services, and do the consequences reach far beyond my "one off" daily deal promo?
Rebecca says ...
Trisha, I agree with you wholeheartedly. When I needed to drive clients through my door, I would have some flyers printed and hand deliver them around the local neighbourhood with a call to action. I would ensure my flag was out to draw attention to the fact I had a clinic upstairs, and if money allowed I would run a series of small adverts in the local rag. Added to that I would go to local kindies, or schools to get my name out there. There isn't just a one fix, you need to do a multitude of advertising/marketing. And it's ongoing. And as you said Trisha it allows you to get the right clients, not the bargain hunter, who is not loyal and moves onto the next 'deal'
Carleen says ...
Trisha,
I appreciate your opinion, each to their own and we all have a right to have our opinion, this was my experience with doing a deal and i was happy with it!
I never had to fork out hundreds of dollars upfront to advertise which was money I did not have so it's not nice to judge on this when you obviously had the funds to start your business whereas people like me who have the skills, ability and commitment but just need the funds to get going. I used some of that end of deal money to do flyers and took them around neighbourhood although I do find a lot of businesses that even do flyers etc to advertise put a discount off first treatment or a free this or that when you book this so how is that any different from doing a deal?
As I said thousands of subscribers saw my deal and I had many even book for many other treatments at normal price. There are many that don't return who are bargain hunters but there are many who once they come in for that deal find your quality of work is amazing and become loyal customers. Remember I said my deal was only 30% off and cost me next to nothing for the products. I find other salons mark their prices too high for treatments even after all costings are covered. Businesses in New Zealand charge too high prices, it's just unfair.
Julie Breeze LaserHaus says ...
I felt motivated to respond to this article as while I appreciate that deal / coupon based deals are not for every business, they do have a place in our industry if they are consistent with your business model. Businesses compete on many levels, customer service, the costs to deliver services, the cost of capital. Just because a business decides to target customers who are looking for greater initial value doesn’t mean it is a bad business - it means that you need to demonstrate sustainable value over the life time of your relationship with this customer.

To make things harder, business models and marketing channels have evolved considerably over the past few years as information technology has rendered many old approaches to business obsolete. The coupon/ daily deal is part of this change to an increasingly online and connected long term customer base.

Contrast two airlines, Singapore Airlines is a high cost, full service airline that hasn’t been profitable in recent years; with Southwest Airlines a US domestic airline that offers a no-frills service, no allocated seating (you queue like waiting for the bus) and is very cheap fares which has been extremely profitable. Who says one is better than the other?

Bad businesses and good businesses are separated by much more than their sales channels (including daily deals).
Pam Stellema says ...
By far, the majority of these deals are short term gain for long term pain.

On average, most salons make around 15% margin on their revenue once all costs are taken into consideration. Therefore, any discount above this means you are most likely trading in the red. It may not seem this way initially but down the track you will see and feel it.

Some salons are very clear about what they're trying to achieve with these kinds of deals and occasionally they do ok. It requires careful planning to ensure the discounted services lead to ongoing appointments and therefore full priced sales.

I would recommend that no salon should use their primary services as part of their discount offer as this can lead to those services losing their pricing integrity and no-one will want to pay full price for them in the future.

Staff must be well trained in what is expected of them during these offers so that re-bookings will be made, as well as additional services and retail sold.

Other considerations must also be not providing below standard services because of the special deal as this will lure no-one back and you may end up with a bad online reputation on the many review sites.

Also, your regular clients must not be put out because your appointment book is full of loss-producing services, as you risk losing them to a salon that will put them first.

My advice to all business owners is to look to a long-term and sustainable future with whatever you do.

A quick buck can lead you to bankruptcy down the track when your cash flow drys up.
www.SalonSavy.com.au

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