Crazy busy week last week hence the brief blog hiatus…But first thing Monday morning it’s back to daily deal math…Borrowing my son’s recent catch phrase (including the tone) – “Sorry for your luck.”
For part 1 of this blog, I rounded up and inserted some pop music quotes to give people a reason to keep reading. This time it’s (scary voice) straight math baby. We left off with the basic math for correctly determining profit/loss from the initial sale and redemption of a daily deal. Two additional things have potential to drive value from a daily deal offer. Both can be significant, so they should not be ignored.
1) Upsell on the original deal. If you sell a daily deal for $20 value, but customers usually spend $60, the profit for the additional $40 of sales above the deal amount is significant. These sales usually occur at full price (usually you cannot combine another coupon or offer with a daily deal offer) and are therefore very profitable. In many cases the profit on the upsell can easily surpass any loss from the initial daily deal sale/redemption.
2) The holy grail of marketing – winning new customers and building your regular customer base. If from the 40 new customers in the previous blog’s example, 20 fall in love with the restaurant and become weekly customers at regular price (at which you make a profit) whatever amount you might have lost on the initial daily deal will prove insignificant compared to the future value of the 20 new customers.
The first item can be measured reasonably accurately with some work even if it is accomplished by having cashiers jot down upsales on daily deal redemptions. You would simply take the daily deal redemptions X (Average upsell amount – normal profit percent on sales).
But the second item which is arguably the most important value add of a daily deal offering can be very difficult to track/measure, probably to the benefit of the daily deal providers. They promise a lot here and realize there is no easy way check that the promises are realized. Short of having a host/hostess (from the restaurant example) who works every hour that you are open and can identify first-time customers from the daily deal redeemers and then track how often they come back over the next 6-12 months, how are you going to measure this?
So at the end of all of this miserable algebra and the painful time warp back to the Scantron form for the standardized math test where all of the answers look right, the profitability of a daily deal is correctly answered with bubble E – “Not enough information to solve this problem.”
There is no easy way to measure or even decently estimate two crucial numbers in determining the success of a daily deal:
1) How many of the daily deal sales/redemptions were customers who would have come anyway in which case the net is a loss of the total amount of unnecessary discounts given.
2) How many first-time customers via the daily deal, even if unprofitable, ultimately become regular customers (minus the daily deal discount) and drive a significant profit over the coming months or years as a regular customer?
The key to ultimately answering the “Was this daily deal a positive or negative for my business?” is better tracking of customers. You need to measure of couple things. First, you need to be able to measure how many redemptions were from new customers versus regular customers who would have come anyway. Second, you need the ability to determine which of the new customers came back over the coming months.
In some cases, a merchant may be able to estimate these things by comparing weeks and months following the daily redemptions to months prior or possibly the same month from the previous year. More exact would be a system that tracked customers and know which of the daily deal customers returned and how often. It would also give you an idea of how many of the daily deal redemptions were simply loyal customers taking advantage of discounts.
Our miPlaces Merchant Solutions marketing platform can help you measure these math mysteries for daily deals and also also any other offers/coupons.
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