CITYWIDE — Check your inbox each morning and you’ll probably see one, an e-mail promising you half off of a cosmetic service, a steal on a tropical vacation to Mexico or buy-in to a lottery of sought after sports tickets.
Daily deal websites are sprouting up on the Internet like mushrooms after a rainstorm, and, like some fungi, they can be as dangerous as they are appealing for the unwary business owner.
From a consumer point of view, the daily deal websites provide a cheap way to access things they already wanted or tempt them into a spur-of-the-moment purchase they might not otherwise have made.
Companies like Groupon.com or Livingsocial.com capitalize on that and rake in half of the money that people spend on the deals, depending on the terms of the contract made with businesses.
Businesses can benefit from the exposure to the massive number of clients these sites offer if they’re savvy, but some find themselves in way over their heads, inundated with orders for products or services that they’re putting out for only a quarter of the amount they’d normally receive.
It’s a delicate balance that can be a windfall if business owners play their cards right, said Laurel Rosen, president of the Santa Monica Chamber of Commerce.
Rosen helped craft a week of Groupon.com deals focused exclusively on five Santa Monica businesses including Willow Spa, Pacific Park, Fairmont Miramar Hotel & Bungalows and the Border Grill.
The chamber worked with each of the businesses to ensure that the promotions offered would benefit them by creating return customers or by encouraging those brought in by the deal to purchase other goods or services.
Willow Spa, for instance, promoted their baths, which don’t fill up appointment books as quickly as massages, Rosen said.
“They sold over 600 baths that week, and many of those people said, ‘Well, why don’t I get a massage?’” Rosen said. “They have to see if they have an opportunity to market something that creates an incentive to buy more.”
Businesses can get into trouble when “their eyes are bigger than their stomachs,” said Julie Mossler, a spokeswoman for Groupon.com.
Those that come in with the goal of attracting a maximum number of new customers may get overrun, which is good neither for their bottom lines nor their reputations.
“You should have already done your homework for your business and what you’re capable of on a Friday night versus a Tuesday afternoon,” Mossler said.
One of the attractions of Groupon.com is the merchant services team, a group of people that help business owners structure deals in a way that works both for them and ensures Groupon.com its cut.
The team and its array of capacity calculators and informational webinars can only produce a product as good as the information it’s given, Mossler said.
Kimmi Worley of the organic skin care product and sunless tanning business Chocolate Sun successfully used a Groupon.com deal at her newest site in West Hollywood.
The Santa Monica business owner was able to control the flood of new customers because her salon is based on one-on-one appointments rather than walk-ins.
“We got lucky that way,” Worley said. “It was just business as usual.”
It was a “phenomenal experience,” she said.
Groupon.com made history in early November when it became the first of the daily deal sites to go public, selling shares on the open market for the not-so-discount price of $20.
Those shares fell over 15 percent to $16.96 by Nov. 23, wiping out $6 billion in investor wealth, according to the Associated Press. Much of the drop was due to competition from similar sites and a fear that the fad will wane.
Although it was the first, Groupon.com is one of many companies that offer a similar service, with Internet retail giant Amazon.com muscling in on the action recently.
Smaller companies, like Santa Monica-based GoSteals.com, are playing with the now-familiar business model to make it more attractive to both client businesses and investors.
GoSteals.com, founded by Nick Barkett, launched on Sept. 15 at the VentureBeat conference.
GoSteals.com is a one-man show, and that man has a different approach to the deals — figure out a way to make money that doesn’t require charging the client businesses half.
“My idea was to empower the business owners,” Barkett said. “If eBay and Craigslist cost zero dollars, how does it make any sense at all for Groupon and the other 550 deal sites to charge a rep share?”
There are two ways to make money off of deals, Barkett theorized. The first is the rep share, or requiring the businesses to pay for placement on the website.
The second is called “up selling,” and can take a variety of forms including a paywall, which gives member-customers access to deals before other people.
Exactly how that will work out is yet to be seen, Barkett said, because nothing will work until his site establishes a user base like that of Livingsocial or Groupon.
Barkett has one requirement.
“Whatever I charge for, I’m always going to keep the connection between the buyer and seller free,” he said. “It will be free to post a deal and free to redeem a deal.”
ashley@www.smdp.com
