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How small business owners fell out of love with deal websites

The Guardian // 16th January 2017
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Powered by Guardian.co.ukThis article titled “How small business owners fell out of love with deal websites” was written by Emma Sheppard, for theguardian.com on Thursday 5th January 2017 07.30 UTC

Business was good for three years for Rosa Roberts and her company, Sketchout. She’d found a marketing channel that drove hordes of new customers to her drawing workshops, held in world-renowned museums such as the Victoria and Albert, and the Tate Modern.

“We sold out of the first batch of vouchers on Groupon after 12 hours and I remember lying on my bed listening to Florence + the Machine, thinking that life had changed,” she says. “I once sold 700 vouchers before Christmas one year, which is business for six months for me and two staff. But it’s not like that any more.”

The UK’s daily deals market (so called because the companies send out limited-time deal emails to users every day) was worth an estimated £6bn in 2011, with UK shoppers spending £3bn between July and December of that year. Groupon in particular had an estimated 100 million users worldwide and was valued at $13bn, just three years after it launched in the US in 2008. By 2012, 65% of online shoppers in the UK engaged with daily deal sites, according to research from Kantar Media.

But in 2013, Groupon’s founder and CEO, Andrew Mason, had been fired and the value of the company had fallen to $3bn. Since then, it has focused its efforts on the 26 most profitable countries, closing offices in 21 locations. In October, it bought its competitor LivingSocial – described as a “non-material acquisition” – further shrinking this once-hot sector. Amazon, Barclaycard and Associated Newspapers, which owns the Daily Mail, have all once dabbled with their own deal offerings and/or investments but have since pulled out of the industry. Experts point to deal fatigue, with customers overwhelmed with similar offerings that no longer encourage spontaneous purchases.

There have been horror stories of small businesses overwhelmed with demand – one Reading bakery had to make 102,000 cupcakes at a loss after her Groupon deal proved overly popular – but many who have relied on these channels have been left in the lurch by the downturn.

Rosa Roberts, founder of Sketchout
Rosa Roberts, founder of Sketchout, says she was overly dependent on deal websites. Photograph: Caroline Arber

Roberts has invested in search engine optimisation (SEO) to attract new customers and is slowly seeing sales pick up via Google search, but has found it expensive to do. The beauty of running an offer through these daily deal websites, she says, is that they are all based on commission – although this can range from 20-50%, depending on the agreement negotiated by the company. Roberts admits she’s unsure if other marketing channels can ever be as lucrative as daily deals once were.

“The fact is, I’ve built my business using them,” she adds. “You become dependent on them, totally … [and] because you fill places up with Groupon customers, you don’t really have room for other people. You [ignore] other avenues.

“They can drive bums on seats, and they do it brilliantly. But I’ve always felt insecure with my business. It’s always felt a little bit like a false market. When the sales aren’t what they were, it’s trouble for me. I need an influx of new custom all the time to keep things going.”

Focusing on customer loyalty

Entrepreneur Virginie Charles-Dear, who co-founded the children’s craft subscription company toucanBox four years ago, says she has run a few deals with Wowcher, Groupon, and “all the usual suspects”. It suited them in the early days.

Virginie Charles-Dear, co-founder of toucanBox
Virginie Charles-Dear, co-founder of toucanBox.

“We didn’t have any marketing budget. The good thing about daily deals is there’s no cost up front. If they don’t sell, you don’t pay, which is great when you’re starting out. It was fairly small volumes at the time, but good to get our first customers.”

Running these types of campaigns didn’t work for them long term for two reasons, she adds. The deal companies kept insisting on bigger and bigger discounts and the type of customers they attracted weren’t right. Commercially, it stopped making sense.

“They were bargain hunters and didn’t necessarily buy into the product,” she says. “They just wanted something discounted. Compared to other channels where we advertised, they were definitely not as good.”

For toucanBox, which has tripled in size every year since its launch and today sends 100,000 boxes around the UK every month (as well as distributing abroad), social media, investing in SEO and developing partnerships with schools were better marketing channels. “So many of the parents we talk to today are recommending us to their friends or family,” she says.

This is where James Lewis, creative development and marketing manager for restaurant Gauthier Soho, has also found success. The restaurant tried one limited-time campaign with Bookatable in 2010, but weren’t impressed with the calibre of customer. Since then, Lewis adds, they have been inundated with offers from competing platforms trying to sign the restaurant up.

“As a marketer, there was definitely a temptation to use [deal websites],” he says. “But all that happened is we filled it up with people who complained non stop and we never saw them again. Since that day we’ve never done another offer on a booking site.”

Lewis argues that small businesses by their nature, should be looking to build real relationships and loyalty among their customers. The restaurant has instead invested in its own email marketing list and publicises seasonal offers directly to people who’ve been before – emailing those who’ve been most frequently first to advertise, for example, their two-for-one tasting menu.

“The discount sites and deal platforms are killing the one thing small businesses have on their side, which is that they’re small,” he says. “That’s what people want to connect with, and what the big chains are desperate to seem like. We concentrate very hard on making our regulars feel like they want to come again and they then tell their friends.”

Guaranteeing an excellent customer experience, understanding your customers and building that brand story is exactly what Maria Heckel, marketing director of the Chartered Institute of Marketing, insists small business owners would be wise to focus on – particularly if they have found themselves over reliant on business from discount marketing channels.

“These websites can bring new people, but they don’t become customers. It’s a one-time transaction [and] actually the websites’ focus on price tends to devalue, rather than add value to your business.

“In the social age, the power of advocacy has never been stronger … Look at building your brand, building value and building loyalty. What is it you want your brand to stand for? There’s a real opportunity for small businesses to tell their story and attract customers, who are probably prepared to pay a little bit more because they value what you’re offering.”

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