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Coupons, Discounts and the Customer Experience

At our Search Starts Here conference earlier this week, I listened in on the panel discussion with Rich Razgaitis of Reach Deals and Martin Tobias of Tipper to hear more about the raipdly growing daily deal business model.

With more than 500 daily deal sites out there, it’s clear that the model is driving people in the doors of small- and medium-sized businesses. While advertisers discount their product/services and share profits with the daily deal provider, they’re not being asked to pay anything up front – a very attractive model to some small businesses looking for new customers. Different than coupons, the daily deal model incentivizes quick purchases and promotes engagement with purchasers networks. When asked to explain the difference between the daily deal and coupon model, Tobias cited the extremely high and fast redemption rate as compared to coupons (around 70% are used in the first 30 days of purchase). But do businesses win long term?

To be a win-win for SMBs and consumers, daily deal companies should encourage relationships with merchants over time, as opposed to selling as many as they can in one day. This will allow for a particular business to repeat this model in a month, three months, or even quarterly.

It’ll be interesting to see how this model expands in 2011. I’ve heard about a few examples of BtoB-type daily deals in the past month. Will niche companies come up to target these particular audiences, or will bigger players like Groupon set aside a specialized sales force for this audience? There are companies out there that can help with different components of the model (admin and customer account management, software, deal sourcing, etc.). Tobias said, “everyone in this room should try to have the deal businesses be part of their business.”

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