Lifetime Value of Daily Deals

Perhaps the most hyped retail business model in the history of commerce, daily deal sites present merchants with a viable opportunity to acquire new customers and generate more revenue over the customer's lifetime. But it must be done right to be successful.

The concept of customer acquisition is something that daily deal providers actively sell to merchants and advertisers as a key reason for participation. It's well-documented that buyers enjoy learning about new businesses from daily deal vendors and it is hard to argue they are not high-volume drivers of new business. When it comes to the effect on lifetime value, however, things begin to unravel.

There are many perils to acquisition; anyone who has ever done any marketing can testify to that. What merchants and advertisers offering deals must understand is that deal vendors provide nothing more than a new promotional channel - a medium where consumers turn to find new businesses and save money (see sidebar), but also one in which all the same rules apply. Failures in daily deals are rarely the fault of the deal network itself; as a performancemarketing channel, the merchant/advertiser will get out of a deal exactly what they put into it. The onus is on them to make the deals work.

Perhaps a glimpse into the mechanics of this emerging channel will serve merchants well. The two primary reasons for leveraging daily deal services are to build awareness and to ultimately increase the lifetime value of customers. If you have a good product, there's no reason not to put that in front of people - and daily deal sites provide an excellent way to do that. But because daily deals tend to eat away at full-price shoppers, their current execution can become nothing more than a break-even proposition for brands. Daily deals are terrific for generating short-term demand, but they have the potential to perform far better if executed properly.

Because daily deal vendors can only help merchants position themselves, merchants have to do these three things:

Understand Profiling: There is currently little in the way of segmentation available from vendors within the daily deal space, but expect this to change over time. Merchants, however, can take the lead by focusing their targeting on new buyers rather than existing ones. An example would be to offer a specific type of discount; a business that makes most of its sales during the day might promote an offer exclusively for use in the evening.

Commit to Tracking: Most offline businesses are not set up to track the effectiveness of marketing campaigns (expect more "loyalty" components to come to daily deal sites in 2012), but it is particularly dangerous for merchants not to track daily deals. Personal information can be challenging to collect, but there needs to be a process in place to identify who redeemed an offer, when, and for how much - if only to validate what the deal vendor is reporting. Merchants using vouchers that adopt some form of tracking are better positioned to upsell new buyers and bring them back for additional business, thereby increasing lifetime value.

Develop a Smarter Strategy: Merchants and advertisers who think outside deep discount strategies may be better positioned to drive greater lifetime value from daily deal marketing. For example, consider promoting a limited number of goods of full-priced merchandise to shoppers. Restaurants might opt to use daily deals for the promotion of tasting menus, for instance. When it is less about the discount and more about the experience, impressed customers are more likely to return often, increasing lifetime value in the process.

Daily deals are here to stay. Merchants who understand the importance of using the channel as a means to not only acquire new customers but also build greater lifetime value will achieve the highest level of success.