NEW YORK ( MainStreet) -- What's better for your business, a daily deal or a coupon? The answer, of course, depends. What type of business are you promoting? Is it a start-up? A seasoned restaurant? Are you selling services or products? These are all questions a business owner must take into account when deciding the best way to get customers.
Some experts say neither, by the way. "They both deteriorate and discount your brand in the short- and long-term. There are much better ways of trying to build traffic, such as loyalty programs, community involvement, creating ambassadors of your customers to tell your story and to do a better job of telling your story on the Web," says Tom Kelley, principal at AccessPoint Media Group. Kelley specializes in brand building for small businesses and start-ups, mainly in the restaurant and hospitality industry. "Coupon and daily deals do nothing but create an environment of coupon clippers and folks looking to find the next best and cheapest lunch. That doesn't build loyalty. It actually demonstrates to the customers and your guests that your product can be discounted and in most cases they will subliminally think you're overcharging them," Kelley adds. In the most general sense, a daily deal is a typically a heavily discounted voucher prepaid for by consumers, while a coupon is used at the point of sale, says Kara Nortman, senior vice president of consumer businesses at CityGrid Media, parent company of Citysearch and Urbanspoon. CityGrid connects small businesses to customers by aggregating content for that business, which is then pushed out via mobile apps and Web sites where consumers will find them. On the one hand, the so-called Groupon ( GRPN) effect has created a cadre of consumers eager to find deals online to interact with merchants offline. Daily deals from the likes of Groupon and LivingSocial "have a much stronger commitment vehicle," whereas coupons are a more gentle form of engagement, Nortman says.
"Groupon provides a suite of local marketing tools that finally address classic small-business concerns, from new customer acquisition to retention to yield management. There is no more effective toolkit available to merchants today," says Julie Mossler, a Groupon spokeswoman. Daily deal sites take a percentage of the revenue made from each deal sold to consumers. But with that commitment comes execution challenges. Business owners need to take a hard look at their margins and operations to see if they can handle the -- likely temporary -- increase in business a deal voucher offers. "In every market we serve we have a team of on-the-ground experts who know the local market and can sit down with a merchant and discuss recommendations for what type of promotion will work best for them. During our face-to-face meetings we'll work with a merchant to craft a tailored promotion that showcases their best offerings and helps move their business forward," a LivingSocial spokeswoman says. Customer expectations are much higher on deals, which doesn't necessarily translate into long-term customers. "In most cases, the daily deal partner does not charge an upfront fee to the small business in exchange for a share of all revenue generated on the deal sales," says Chris Rimlinger, senior vice president of marketing for the direct marketing franchise Money Mailer. "However, after the email goes out and the purchase period is over, there's nothing to build upon that momentum. Some small businesses have found that daily deal customers are often just 'deal hunters' who come in for the steep discount and do not return." Coupons, on the other hand, "do drive new traffic, they also build loyalty in existing customers and awareness in consumers," Rimlinger says. Among the benefits of coupons, she says, is their shelf life, and that they have to be "opened, saved and sorted by consumers." Coupons can also be "targeted to specific neighborhoods, which lets the business owner focus their efforts on households that are most likely to come back again and again," Rimlinger adds. Coupons have upfront costs to print and mail, "but all revenue generated by the campaigns stays with the business owner," Rimlinger says.
Regardless of the offer, though, most experts agreed businesses should experiment with them and keep careful track of when the deals are being used and by whom, so future offers can be more tailored. If a business owner is deciding between a daily deal and a coupon, here are some things to take into account: It depends on what the business wants to achieve. If the business is looking to generate buzz -- by promoting a store opening or the launch of a menu, for instance -- a daily deal can reach a much broader audience. "It's a much bigger platform. Vouchers tend to have heavier discounts associated with them and a much larger consumer base likely to see this out there. When you need to create a lot of awareness it can be a great vehicle," whereas coupons may be more appropriate for marginal changes to business, Nortman says. The deal versus coupon dilemma also depends on whether your business relies heavily on fixed or variable costs. Certain industries do better with daily deal vouchers, Nortman says, such as travel-related services, personal services and events. "When Groupon came out they probably did a lot more restaurants and now you're seeing more share of their growth in the travel vertical, because if you operate an airline or hotel your cost to service incremental customers is quite low. You have a lot more margin to play with and are more likely to make money on that first deal versus a restaurant, which tends to have more variable costs," she says. A third consideration: Are you selling a service or a product? "If you are selling product and you're driving online purchases and offline purchases, you want to be using coupons for sure," Nortman says. "Consumer behavior is moved so heavily by looking for coupons to drive e-commerce, if you're not participating in a coupon as a product you may be losing out on the sale." At least in terms of daily deals, businesses should consider the payout time frame. LivingSocial says businesses get their money within two weeks; Groupon says the time frame varies. In the U.S. and Canada, it's typically within 60 days, whereas internationally, merchants are not paid until the customer redeems the Groupon, according to its Securities and Exchange S-1 filing. -- Written by Laurie Kulikowski in New York. To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com. To follow Laurie Kulikowski on Twitter, go to: http://twitter.com/#!/LKulikowski