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Daily Deals - What is the Point?

Written by Rachel Robertson on May 28th, 2015.      0 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
 

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