The Daily Deal Dilemma - Dynamite Marketing or Industry Destruction (Visit this link)
The daily deal discussion has become the latest irritant on par with the topic of SkyRide and often leads to vein-popping, heated discourse similar to any US political exchange between Democrats and Republicans. It can get heated!
Generally, there are two positions held about daily deals:
Position 1: Strongly Against: Deeply discounting the product while a third party profits on your hard work is not sustainable and does not make sense.
Position 2: In Favor: It's a great way to expose your business and bring a lot of traffic through the door.
Many businesses, both in and out of the skydiving industry, have found the daily deal to be a dreadful experience. The deal has been misused by offering too many deals, too often, without creating a proper strategy for its implementation. Think of the daily deal like chocolate. Eat it in moderation and it can be enjoyed. Eat too much of it and it will make you sick.
The application of the daily deal can be either positive or negative dependent on several variables and is not universally a good idea for all.
Three Variables that Dictate Daily Deal Success or Failure:
A). Motive - Revenue Generator or Marketing Vehicle?
B). Competition in the marketplace.
C). How the deal is structured.
A. Your Goal for Offering a Daily Deal
What is the motive for creating a daily deal? If the motive is to create an infusion of cash to get through a winter or to generate a major profit, then this is a red flag. Offering daily deals annually for a prolonged period at high volumes is unsustainable.
If the motive is to use the daily deal as a vehicle to increase awareness about your DZ, then this is a better approach. I view the daily deal more as an advertising expense as opposed to a revenue generator - a big difference. The key baseline is to never lose money on any deal.
Creating an intelligent deal limits volume, guarantees a sell out promotion and goes away quickly. The purpose is to maximize exposure based on the size of the database of the daily dealer. Whether you offer 500 vouchers or 2000, your exposure to the database is the same. So, offer a lower volume.
B. Competition in the Marketplace
If there are multiple DZ's competing in the same marketplace who offer promotions at different price points, volumes and times of year, the marketplace will erode and operators will be forced to cost-cut as profit margins become razor thin resulting in a lesser product. Consumers will refuse to pay the full retail price knowing that if they are patient enough, a deal will soon appear.
C. How To Structure a Deal
If you elect to offer a deal, how you structure it is most important. If the fine print does not benefit you entirely then it could be detrimental. Below are important keys to structuring a deal:
1. When to Offer Your Daily Deal - Don't (Ever) offer a daily deal during the beginning or during the busiest months of the season. Basic economics teaches that one can charge the most when demand is high, but pricing will slip if a great deal is offered in great supply. A daily deal should only be offered at the end of the busy season when transitioning into the quieter time of year when demand is low.
2. Expiration Dates - Ideally, allow for a lengthy expiration date as opposed to a shorter one. Pushing for a short-term expiration date (six months) puts pressure on certificate holders to redeem, causing high volume in a short period of time. If the weather is particularly poor, rescheduling these deep discounted customers can interfere with availability during the peak season.
Here's an example:
Many DZ's offer a high volume deal (more than 1000 vouchers) in the month of December (Northern Hemisphere) with an expiration date for May or June of the following year. The purpose is to generate a high volume of business during the cooler months as winter transitions into spring. Conceptually, it's a good idea to maximize being busy and creating work for DZ staff when it's normally a bit quiet. The consequence occurs if the weather is poor during the spring season forcing these discounted jumpers to reschedule into the busy months thus reducing availability for full-retail price paying customers. Offering a longer-term deal (a year) doesn't push so many people en masse in such a short period of time.
3. Deal Pricing
a. Know Your Cost. Know exactly what a tandem skydive costs you. Round up when factoring in variable expenses like the cost of fuel.
b. Price for Profit. Know the number you would wish to receive before beginning talks with a daily dealer. Profit margins are not significant, but the number MUST result in a profit. If it's at a loss….DON'T ACCEPT IT.
4. Negotiate. Negotiating a daily deal is not unlike purchasing a car from a salesman. Don't show your hand, but let the offer come from the daily deal representative first and build the margin up from there. Remember, there is competition for daily dealers. Several years ago, GroupOn was the only dealer in the space. Today many are fighting for your promotion. Pit one against the other to maximize profit margins. Never pay for credit card fees. Dealers will try to have you pay them. This can be negotiated and should be a show-stopper. Tip: Address this detail last after you're happy with the amount received for each voucher sold.
5. Limit Vouchers - Setting up a good deal should create a vibe or a rush from the consumer base by offering limited quantity over a limited time period. Many DZ's offer too many vouchers to generate cash flow. Again, if the motivator is for a cash infusion (which it often is in this cash flow industry) then becoming cash poor is inevitable once current debts are covered and instructors are paid resulting in an unhealthy cycle of continuously ‘robbing Peter to pay Paul.’
6. Deal Parameters - Have you ever noticed that popular restaurants or hotels put in their conditions that the deal cannot be redeemed on Valentine’s Day or some other big holiday event? Be sure that your deal doesn’t impede on customers wishing to pay you full retail during boogies or traditionally high volume weekends. Be clear how to handle vouchers after a certificate goes beyond the expiration date.
7. Be Prepared - This is not part of structuring the deal, but it should be part of your mindset. Be prepared for high traffic on the phones when your deal launches and most importantly offer VIP service to these coupon holders. A marketer's challenge is to create a vehicle that drives traffic through the door. Once there, treat them with amazing service in order to wow them. Too often, companies treat people who redeem their vouchers as second-class citizens because of the deal they have. The ultimate purpose of good marketing is to drive traffic and convert customers into loyalists.
Suggested Alternative: A More Beneficial Daily Deal
Skip the middle man. A more beneficial deal is creating an in-house deal to your customer database. Capitalizing on a customer base that already loves you allows for an easy sale. Offer a deal to your own customer base and offer it for three days only (ideally on Black Friday or Cyber Monday in the USA). In order for this to occur, DZ's must be collect e-mail addresses from all of their customers in order to launch a successful in-house program.
If implementing a daily a deal use caution, apply a strategy and execute in moderation. Generating traffic and building your business at an acceptable price point is a process that begins with treating guests like a VIP at every point of interaction. Too often, drop zone operators focus on the skydive to wow the customer as opposed to amazing people by offering a clean facility, high communications and staff who are passionate about service. Building a business without these foundations will create the need for quick cash resulting in a cycle that is damaging to all.
This is a good article. The only thing I would strongly caution against is the following:
"..it would be beneficial for DZO's who compete in the same markets to have an annual meeting to discuss promotions as to prevent under-cutting."
In anti-trust law, this falls under the realm of Price Fixing, which is illegal and can get a lot of folks in trouble. NEVER discuss prices with competitors.
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