Discount voucher deals can prove dangerous for small firms

05-Dec-2011 - Last updated on 07-Dec-2011 at 11:56 GMT

Small food firms that use discountvoucher sites to attract new customers must tread carefully or face disaster, experts have warned.

Last month a small manufacturer, Need a Cake, struggled to meet demand when it failed to anticipate the high level of response to an offer it had entered into with online voucher site, Groupon.

Instead of the expected 150–250 orders for a dozen cupcakes a week, Need a Cake was inundated with about 8,000 orders before it could get the offer capped, said Steve Consalves, business development manager at the firm. It was forced to take on extra staff and struggled to fulfil orders for its regular customers.

A Groupon spokeswoman said: "We make recommendations on capacity but, ultimately, we trust our partners to know their limits."

Raise brand awareness

Manufacturers must know what they want to get out of deals, said Jamie Waldegrave, co-founder of online voucher site TipToken. They may want to shift excess stock, raise brand awareness or attract new customers. The best way to structure a deal changes depending on this, he noted.

Derek Brum, owner of the Cornish Pasty Trading Company currently running a Groupon offer said many smaller businesses failed to get the most out of their deals because they attempted to sell their main products through them and go into deals with the primary objective of making money, rather than using them as a cheap marketing tool. "If you can't sell your main product, what are you doing in business?"

It is down to businesses to sell their main lines alongside deals and to ensure new customers become returning customers, he said. A year-and-a-half study of discount coupon offers in the US – where discount voucher sites are more popular – conducted by Rice University and published earlier this year found that, although close to 80% of deal users were new customers, significantly fewer users spent beyond a deal’s value or returned to spend money on items at full price. Equally, 26.6% of businesses lost money on their discounts.

Companies need to structure offers carefully based on specific marketing and operational objectives, the report said.