Close Harbour Seafood serves Live Main Lobsters, Whole Belly Clams, Alaskan King Crab Legs, and other tantalizing seafood delicacies in Plantsville, CT, and, like all businesses in the F&B industry, has a need for a constant stream of new customers. Deals and promotions are traditionally the best way to get people to try out new restaurants, so Close Harbour Seafood decided that daily deals are worth a shot. They used Zuupy CrowdDeals, a make-your-own-daily-deal-website platform, and started familiarizing themselves with the processes: deal creation, deal marketing, and deal redemption.

The Goal

The goal of running the (experimental) daily deal is simple: to get a many deal buyers as possible in a short time frame and try to upsell them during their visits and retain them as repeat customers. Close Harbour Seafood saw the deals as a marketing cost and decided that it has to provide something valuable as bait for new customers. They finally settled for a 50%-off restaurant voucher: a general yet appealing offer enough to get people through the door.

The Process

1. Deal creation
Close Harbour Seafood knew that the bulk of the battle was having a high-quality, irresistible deal to offer. They went into their Zuupy CrowdDeals dashboard and created a deal, taking literally minutes to just type the deal terms, deal copy, and fine print, and to upload some captivating deal images. The deal looked neat and comprehensible, so the process was essentially done.

2. Deal marketing
Close Harbour Seafood already had a fan base of close to 2,000 people on its Facebook Page, so they decided to promote the deal on Facebook. After a few simple status updates on the morning of 23 September 2011 (EST), buyers started pouring in, and the tipping point of 15 buyers was achieved. People continued to buy until about 24 hours after, when the deal was schedule to close. Close Harbour Seafood ended up with 94 buyers for their $10 vouchers, giving them total revenue of $940 for less than an hour of active work and zero dollars invested up to this point (they were on a free trial). Not bad!

3. Deal redemption
Since each buyer will be emailed a printable voucher, they can use it to buy meals at Close Harbour Seafood anytime before their vouchers expire. Close Harbour Seafood had access to an integrated online voucher redemption system that makes the process easily trackable for analysis or accounting purposes.

Possible Take-Home Lessons

The quality of the deal and the existence of an active, enthusiastic fan base were instrumental in ensuring that the deal was a success. Close Harbour Seafood’s first daily deal was not meticulously crafted through painful hours of fine-tuning or buzz generation; it was made to be relevant to as many people as possible from the outset, while other considerations like design were treated as secondary (rightfully so). They also made use of existing social media channels like Facebook to not only promote the deal but also encourage other enthusiastic buyers to do the same.

Ultimately, it seems to pay off whenever any daily deal website operator decides to make sure what they sell is truly wanted by their subscriber or fan base before selling it. Close Harbour Seafood clearly had this principle in mind from the start – everything else was facilitative.

Daily deals are a competitive business; you either differentiate or die. Operational costs are not exactly on the low side, and your sales may not be adequate for you to turn a profit. Below are thus some ideas for revenue generation:

1. Bait-and-switch
Use loss leaders for your first few deals and sell a good deal at way below market price. A good deal is one that is general and low-ticket enough to apply to just about anyone (e.g. gift cards). The aim here is to spark off some initial activity, short-term word-of-mouth marketing, and create awareness of your daily deal website. Your “losses” should be treated as a marketing investment; each subscriber obtained has a lifetime value after all that you can tap on to get future sales. Rushing to make a profit on the first deal may not necessarily be a good idea. Not many daily deal websites use bait-and-switch yet, so it might be a good idea to experiment.

2. Free daily deal vouchers
The only thing better than a 80%- or 90%-off voucher is a free one. Give away a few complimentary vouchers on good deals (see above) on a lucky-draw basis, but collect subscribers’ email addresses upfront in exchange for participation in the lucky draw. The classic “give us your email address so that we can notify you if you are chosen” usually works well.

3. Daily deal aggregators
Daily deal aggregators (see a list here) are websites that collect the best deals from a whole database of daily deal websites and collate them into one daily deal email. Certainly, your deal will appear side-by-side with your competitors’ deals, but, if your deals stand out, your competitors’ deals will be rendered as mere noise. Best of all, most daily deal aggregators are free to use and require no manual work, thanks to RSS/XML data feeds. The only pitfall is that most daily deal aggregators use a different XML deal format, despite the Open Deal Format movement. Fortunately, good daily deal platforms have capabilities to provide different feed formats for different daily deal aggregators. ;)

4. Referral program
Make your first few customers who are enthusiastic about your brand your voluntary sales force. Give them discounts for successfully referring a friend who purchases something; CPA is a better model than CPC. The key here is not to be stingy with the referral rewards. If increasing the rewards by 100% has the potential of increasing the number of referrers by 200%, the referral program is likely to profitable. The key is to see referral discounts as a marketing investment.
P.S. If you already are a Zuupy CrowdDeals customer, our referral program is coming very, very soon. We promise!

In conclusion, daily deal websites that want to survive must understand this growth sequence: awareness first, sales later. With no brand awareness or brand familiarity, people are unlikely to buy anything. Think of brand awareness as an initial-investment asset that can be exploited down the road to produce consistent sales. It is unlikely that a newcomer to the daily deal industry or, indeed, any industry, will be able to skip levels. The key takeaway is basically to do whatever is necessary to get considerable awareness first and then focus on profit strategies.

Depending on the volume of sales that you target to make, the costs of starting and running a daily deal website can vary widely. Let us assume a small, growing daily deal website (low- to mid-6 figures in yearly turnover) for the purposes of this article.

1. Daily deal solutions and other software
The most obvious expense is the cost of building the daily deal website itself. There are three choices here: 1) build one from scratch, which costs a bomb (read: five figures) but is customizable to the bone, 2) get a daily deal script at a couple of thousand dollars and install it on your own servers, or, least overwhelmingly, 3) get started for a small monthly fee or a percentage of sales with one of the many daily deal platforms out there (including ours). The most recommended option for those starting out is obvious, so let us settle with that.
Cost: US$50-100 per month and/or 10-20% of sales

2. Subscriber acquisition
Subscribers are basically people whose email addresses constitute your mailing list. It is too naïve to assume that people will come to your website once it is set up without you needing to spoonfeed them your daily deals. There are two choices here: 1) acquire email addresses using traditional methods of online advertising (e.g. Google Adwords, Facebook Ads) and social media (Facebook and Twitter) by building a following and organically growing your list over time (the slow way), or 2) buy a list of email addresses (the fast way). If you go for the second option, beware.
Cost: US$300-500 per month

3. Email marketing software
Email marketing and deliverability is really an entire industry on its own. Your daily deal script or daily deal platform may come with an in-built emailing system, but, when you scale up to tens of thousands of subscribers, it is most prudent to start using email marketing software (MailChimp, SendGrid, PostmarkApp, etc.) that are built specifically to ensure that your mails are delivered on time and past the spam filters and that you can know what is going on (how many opens, how many unsubscribes, click-through rates, etc.).
Cost: US$50-100 per month

4. Design and creative expenses
Design and aesthetics are important and, most importantly, good design leads to credibility and increases trust and confidence (read: increased sales). One of the very first pieces of design work that you might need is a professional-looking logo. Then, you would need to create compelling graphics for other parts of your website (e.g. icons, banners, clip-art). If you are serious about differentiating your website, you would need custom-made videos for video marketing as well.
Cost: US$500-1,000 per month on average

5. Sales/Variable expenses
Even with a gorgeous website and a large mailing list, you will not get revenue unless you have sustainable deal flow, i.e. enough merchants who want to work with you to provide high-quality deals that are in demand. The cost of preparing for-merchant marketing collaterals should not be underestimated: business cards, brochures, data sheets, and agreements all cost money. After the deals are done, more expenses await you: the merchants’ revenue after your commission (which may include unredeemed vouchers), payment processing fees, refunds, etc.
Cost: US$5,000-10,000 on average

6. Administrative and miscellaneous expenses
Office supplies, utilities, and transportation all cost money. If you are required to incorporate your business for whatever reason, legal costs will also eat into your initial capital. Lawyers are notoriously expensive. So are PR firms. Do not forget other vital software which importance should not be discounted, such as analytics software (e.g. SEOMoz, HubSpot, ClickTale, Visual Website Optimizer). Also, let us not forget our obligation to pay our taxes dutifully as responsible citizens. And who exactly is paying for your living expenses, if you are working on your daily deal business as a full-time executive?
Cost: US$1,000-2,000 per month

There is obviously room for debate as to the range and magnitude of these costs, but the purpose of this article is not to provide an exact figure for budgeting as much as much as it is to provide a list of expense items to keep in mind when considering an entry into the highly-competitive daily deal industry. If there is any essential expense that I might have left out, do comment below and share your thoughts.

In the daily deals/group buying industry, any unredeemed voucher commonly creates pure profit for merchants. Unredeemed vouchers are more prevalent than one would expect, and there are, in fact, numerous highly-active secondary markets to buy and sell unredeemed vouchers. They are basically an industry on their own.

With Zuupy CrowdDeals, we have an integrated merchants’ area that allows merchants to indicate redemptions as they happen. However, merchants only have access to certain details of the sold vouchers and must enter the rest of the details from the printed vouchers themselves (specifically, the last three digits of the voucher serial numbers) to indicate a redemption. The core benefit of this feature is simple: merchants cannot fake redemptions, especially if your business model as a daily deal website owner is to only pay merchants upon successful redemptions:

The obvious idea in this article – apart from the fact that our daily deal platform can be used to handle voucher fulfillment in the manner described above – is to try to work with merchants on the basis of “payment only for redeemed vouchers.” Merchants hounded by daily deal salesmen will have enough bargaining power to say no, but, for the rest, they are unlikely to object, especially when they are not aware of the magnitude of the profit opportunity that lies in unredeemed vouchers. Whether unredeemed vouchers are beneficial in the long term is another question; the fact that they already happen means that you should not ignore it.

As a daily deal website owner, it makes little sense to pay a merchant for services they did not deliver. Neither should you.

Facebook Deals is history. Groupon is declining. Google Offers is not exactly going places. In short, the luster and explosive growth of the daily deals industry are finally waning; the industry may be approaching some form of maturity or stabilization.

As a daily deal website owner, you may be tempted to ask, “Is there still space left in the US$4 billion industry for me to survive and, heck, to grow?” The answer is probably yes, but a differentiating strategy is probably needed.

Here are a few suggestions:

1. Position your website as a way to learn about new places to have fun. It is sometimes an unwarranted assumption that daily deal consumers are cheapskate bargain hunters who will only buy if the item in question is sufficiently cheap. The term “cheapskate consumers” is an oxymoron; real cheapskates would rather save the cash entirely. Go for rarity and uniqueness; everyone has had enough of spa and massage or dinner buffet deals.

2. Content marketing is your friend. Groupon is often praised for “killer” copy that accompanies its deals. Deals alone are boring, but that is how most daily deal websites operate. Weave a story to go along with your deals. Frame deal details as a narrative instead of yet another set of bullet points. Give your customers ideas. Start a blog that makes your customers like you and that provides your customers with something else to do other than simply buy your deals.

3. Focus on some sort of niche market. We all love to sell everything to everyone, but the truth is we are probably more well-posited to serve one or a few specific markets based on certain geographical areas, age groups, genders, occupations/hobbies, etc. The benefit of serving a niche market is that your niche market will see you as speaking to them directly, because you are. It is also easier to brand your website and curate specific deals for a well-defined market that has unique characteristics rather than for a mass market that theoretically likes everything.

4. Get sustainable deal flow. Lack of high-quality deals is probably the number one reason that daily deal websites eventually die, because that is supposed to be their core competency. The daily deal website is simply a tool. It is not the focus. The deals are the focus. And high-quality deals are deals that consumers want.

5. Ramp up on customer service. Finding companies where you can just directly talk to their employees – in real-time or otherwise – is difficult these days. Communicating often with customers (and being ridiculously accessible) is one of the best ways to build trust and closeness with your customers. It is, after all, always easier to buy from a company you trust. “But how do I start?” Easy: just be available and proactively engage with your brand enthusiasts via email, live chat, Skype, Facebook Page, Twitter, blog comments, Facebook comments, etc. Use them voraciously. They are all free, so there is no excuse not to use them.

The good thing about a crowded space is that 1) the market is super-validated, and 2) it is relatively easy to stand out among the hoards of mediocre businesses. The overarching principle to remember is that there is no one principle that works for all markets; talk to your customers, find out who they are, what they like, and please them. You will be surprised how much strategic planning becomes easier and more directed once you receive constant input from your customers.