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The pros and cons of digital discounts

28 November 2011

A BBC news report this month highlighted the perils of executing discounts and 'deals' as a means to attract new customers.  Need a Cake, a Berkshire based company, incentivised Groupon subscribers to buy a dozen cupcakes by offering a whopping 75% discount.

The move sparked unpredecented demand for the cakes, generating 8,500 online enquiries.  As a result, additional agency staff, distribution and delivery costs look set to not only wipe out any profit anticipated from the marketing campaign, but destroy the profits made by the business during the entire trading year.

Rachel Brown, owner of Need a Cake, said it was the "worst ever business decision" she had ever made.
Other business leaders have also stepped forward over recent months and shared similar stories about their experiences of working with online discount providers to generate sales opportunities and leads.  Many of these websites offer subscribers or members goods at vastly discounted prices, promising their business customers a largescale, immediate increase in coverage and a whole new target market to focus on.  The proposition is attractive.  Offer a loss leading deal to entice interest and attention from new customers, and then use it as an opportunity to onsell additional products and services.  However, for many marketing professionals the benefits significantly outweigh the risks.

Unlike a physical shop where business owners are acutely aware of footfall, key trading times and days, the impact of seasonality, high performing shelves etc... it is virtually impossible to predict just how many people will take up your offer.  Many discount websites do not offer business customers the option to 'cap' the number of vouchers or deals that are in circulation - leading to the type of problems faced by Rachel Brown and her small team.  Furthermore, it is questionable as to whether the online transaction between a business and a new customer through a discounting website builds customer loyalty.  If you buy a product at a significant discount, are you more or less likely to pay full price for the same or similar item later down the line?  Is it not the case that you are more likely to remain loyal to the discount website and return in order to try and find a new deal through another supplier? 

If you are considering an online loss leading marketing campaign, here are our top 5 tips in order to achieve success:

  1. Websites offering discounts and deals are just one option for your online loss leader campaign.  Consider using your own existing customer base to deepen brand loyalty by offering current clients an incentive to buy an additional product, service, or to introduce a friend.
  2. Consider the value of social networking sites such as facebook and twitter to run marketing campaigns.  Many social networking sites now offer businesses the ability to target specific audiences by a whole range of criteria, including age range, location, gender, interests etc...
  3. If you choose to work with a third party website to promote your goods and services, consider offering a discount within a specific timeframe, and limit your offer to a number that sits comfortably in line with your marketing budget.
  4. Define your short and long term objectives for the campaign before you start.  Build your budget for the campaign around the needs identified.  This will not only help focus your activities, it will also help you evaluate the success of the campaign, informing future strategies and tactics.
  5. Finally, if working with a third party discount website, ask for references from businesses that are similar to yours in size and scale.  Find a discount website company that demonstrates an active interest in your business and requirements.  Do not get distracted by the promise of unprecedented exposure to millions of potential customers.  Instead, look for a partner that understands why you are undertaking a loss leading campaign and your operating model.

For more information or advice about any aspect of digital marketing, please speak to a member of the team.


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