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The latest Harvard Business Review case illustrates a theme park trying to decide whether to offer a reduced admission ticket on a social deal site. While a social deal would likely increase attendance numbers, there were concerns that social deal customers would not become loyal returning customers.

A Forbes report from last year illustrated that over 200 social deal sites reach more than 100 million people. Furthermore the social deal site market is predicted to grow to $6 billion by 2015. Here’s what business leaders need to know before committing to doing a social deal offer:

Attract New Customers: The big advantage to social deal sites is that they can help your business to attract a new group of customers. Last summer my husband and I wanted to go sailing on Lake Tahoe. We had never been before and had found three companies in the area that offered sailing excursions. One day I got an e-mail offering a LivingSocial half-price deal for Tahoe Sailing Charters. We were sold and I thought it was such a great deal I shared the deal information with a colleague who also went with her husband. According to LivingSocial 748 tickets for Tahoe Sailing Charters were purchased, not bad for a deal that ran during the off-peak season from late August through September.

Easier Short-term Sales Forecasting: Social deals require an up front purchase resulting in an organization knowing how many deals have been sold prior to the deal being redeemed.

Being Prepared For Increased Demand is Key: Preparation is key from increasing staffing levels during the promotion, to ensuring all staff are up to speed in order to win over these new customers. Corey Kaplan, owner of New York City Bagel Deli in Chicago gives some great advice in the video below on how a business can prepare to optimize their social deal site promotion: 

Negative Losses Can Occur: My advice to small businesses considering offering a deal through this channel would be to create a cap if possible to ensure demand doesn’t exceed supply capabilities. Small London business ‘Need a Cake bakery’ offered a 75% Groupon deal on their cup cakes. The deal was a lot more successful than the business owner had anticipated and attracted 8,500 people. The organization’s staff of eight employees struggled to make 102,000 cupcakes to meet the orders and the business lost approximately $20,000 on the deal. Also worth considering when determining what discount to offer is the social deal site’s commission percentage to ensure you can break even on the deal. Therefore products or services with high profit margins may be more suited to a successful social deal site campaign.

The Returning Customer Conundrum: Some reports suggest that customers that embrace daily deals are cheap and will not become loyal returning customers. This is an over generalization and is likely to become a premonition for businesses doing daily deals who have poor service and substandard products or services on offer. A social deal can be an opportunity to turn these one-time customers into returning ones by offering great products or services and delivering outstanding customer service. My husband and I had a great time on the Tahoe Sailing Charters excursion and would consider returning in the future, particularly if we had friends or family visiting.

Market Research: Social deals also offer marketers the opportunity to find out more information about what attracts customers to the company’s products or services. In the case of our sailing excursion customers had a choice between an evening sail or an afternoon one. Thus Tahoe Sail could gain insight into customer’s time slot preference. In addition organizations could obtain contact information from customers and gain geographic and demographic information from the sign ups.

Increased Online Publicity: A report by Chatmeter on social deal sites indicates that following a deal a company’s online publicity increases, particularly on review sites such as Yelp. This can be problematic if your deal disappoints, thus having a quality offering and good service is key.

Social deal sites can be extremely effective way of creating buzz and increasing sales if done correctly. Businesses should be aware of the positive and negative factors involved in doing a social deal offer, rather than leaping on the bandwagon.

So what do you think? Share your comments below

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