The Pros and Cons of Selling thru Internet's Daily Deals

If I mention Groupon^®, what comes to mind? For me, I think I’m getting a deep discount off of something. I just love a good deal! The idea of getting something at half price or better is tough to resist, even if I don’t necessarily need it. Groupon and the countless other daily deal sites are banking on the irresistible temptation of getting that “good deal.”

Despite its relative newness in the marketplace, this category is evolving, with more specialized children’s products sites such as Zulily, BabySteals^® and Totsy appearing. These specialized sites target parents and gift givers looking for children’s products, meaning visitors are more likely to find something they need or at least can’t resist.

What does this mean for you, those manufacturers out there, who are contemplating a daily deal or maybe are already selling through these sites? While there are definite perks to daily deals there are also consequences. You should be thoughtful and strategic about how and when you use these sites.

Here are some pros and cons to consider:

Let’s Start with the Good Stuff –– The Pros

$$$ –– First and foremost, daily deals raise money. Cash on hand is always a good thing. It affords the opportunity to pay expenses or possibly divert some money to advertising, product development or some other project that can be a candidate for the chopping block when money is tight. How you choose to spend the money raised is up to you. It’s just great knowing you have the money to spend.

Move Inventory –– The second obvious effect and definitely a pro of a daily deal is that it moves inventory out of the warehouse. This is especially good if this inventory is out of season, discontinued or otherwise taking up useful space. Liquidating product via a daily deal is a great way to make room for new products. This is also an opportunity to tease the market with some new introductions, if sold in limited quantities.

Marketing –– If Facebook “likes” are any indication of the reach these sites have, then Zulilly and Totsy, with over 100,000 followers each, are formidable marketing machines for up and coming children’s manufacturers. Selling on one of these sites not only raises money and moves inventory, it gets the word out about your brand and products. Daily deals put your product in customer’s hands. Brand exposure and product out in the marketplace might be more valuable to you than the other positives. Marketing the brand through these sites serves to perpetuate your business by promoting it to a targeted group of customers who can serve as brand advocates, continuing the marketing effort in perpetuity.

Now for Some Bad News –– The Cons

Deal Seekers –– Daily deals condition consumers to seek out and wait for the good sales. When customers are used to paying half price or less for items, it skews their perception of value, altering their willingness to pay higher prices for products. This means that while they may love you at 50% off, they may not give you a second look at full price. Unless you can sustain your business selling at discount prices, this is not a good long-term strategy. It’s ok to offer discounted pricing occasionally to open up your products to a wider audience, just keep in mind these should be the exception and not the rule for raising revenue.

Upset Retailers –– You will want to be mindful not to divert too many sales away from your retailers. If you do offer a daily deal every once in a while this will probably not be an issue, but those who are consistently seen on these sites are undercutting potential sales from their retailers. Retailers are your foundation. Your success is dependent upon their success selling your products. Taking away sales from them may incite them to drop your product from their stores. For those that do keep your products, they may ask for the same lower prices you are offering direct to consumers so that they can also sell at reduced prices. Its one thing to give up margin on the full retail price, but it’s quite another to give up margin on your wholesale pricing.

Brand Devaluation –– The most valuable asset any company has is their name, their brand. It’s through branding that companies develop relationships with consumers. Branding communicates your company’s values. A strong brand will propel a company during tough economic times like these. If your brand becomes associated with deals, it will communicate to people that your products are not worth the same as their competitive counterparts. You should always do your level best to protect your brand identity, build it up and be mindful of activities that might detract from its value.

The Bottom Line

I think daily deals are useful tools. However, just as you can’t build a house with a hammer alone, don’t lean too much on this particular tool to get you to your objectives. Be strategic about how and when you take advantage of daily deals. If you need to move some inventory, raise some quick capital or get your name out there, daily deals can certainly help you achieve these goals. Just know that frequent use of these sites will bring some costs as well in terms of declining sales at full MSRP, upset retailers and most importantly your brand equity diminishing in the eyes of your consumers. After reading this, I hope that you make informed decisions on your future daily deal participation.

About Insights Discovered

Penny Redlin is a regular contributor to the “Business Sense” feature on The Giggle Guide^®, sharing insights about business planning, effective communications and marketing strategies.

Based in Las Vegas, Nevada, Insights Discovered was founded by Penny Redlin in an effort to share her professional expertise within the children’s product category. The company’s mission is to give every mompreneur an opportunity for success. Insights Discovered exclusively services children’s products brands. The specific industry focus demonstrates a strong dedication to the unique needs of children’s products companies. Insights Discovered offers strategic planning, market research and traditional marketing services.

For more information, visit www.insightsdiscovered.com or call 702.218.5707.

About Insights Discovered
Penny Redlin is a regular contributor to the “Business Sense” feature on The Giggle Guide^®, sharing insights about business planning, effective communications and marketing strategies.

Based in Las Vegas, Nevada, Insights Discovered was founded by Penny Redlin in an effort to share her professional expertise within the children’s product category. The company’s mission is to give every mompreneur an opportunity for success. Insights Discovered exclusively services children’s products brands. The specific industry focus demonstrates a strong dedication to the unique needs of children’s products companies. Insights Discovered offers strategic planning, market research and traditional marketing services.

For more information, visit www.insightsdiscovered.com or call 702.218.5707.