Are Daily Deals Right for Your Shop?

Posted 10/17/2012
By Greg Sands

I’ve never been a big bargain hunter, so when Groupon, LivingSocial and other “daily deal” services began generating big buzz a few years ago, I was a little out of the loop. Before long, colleagues were asking me what I thought of these new marketing platforms and whether they were worth exploring. I had heard a lot of mixed reviews about daily deals, but the only way I was going to find out if these services were a viable marketing tool was to test them myself. Here’s a look at what I learned and my take on the impact these online discounts are having on the automotive repair industry.

Getting Started

Because I was a daily deal neophyte, I decided to start off small. My first foray into the space was an offer I made through Groupon last May for two of my Service Street shops in Atlanta. The stores offered a five-pack of oil changes for half off the usual package price. The shops sold 237 packages and gave buyers one year from the date of purchase to redeem the deal.

For my second trial, I worked with Groupon last September to develop a deal for the 10 additional shops I own in suburban Atlanta under a different name. Instead of just offering one deal, these locations gave consumers three options to choose from: a highly competitively priced single oil change; two oil changes for an even bigger savings per service; or a discounted fall maintenance package for approximately twice the cost of the oil change package. The second group of shops sold 809 deals total, and like the first (Service Street) offer, provided buyers with a year to redeem the deal.

Of the three deals we offered at the second group of shops, the package of two oil changes sold best, with buyers snapping up 507 of the deals. The single oil change ranked second with 262 deals sold. Of the 237 offers sold at Service Street (the first group that offered a daily deal), 185 were redeemed, a redemption rate of 78 percent. As this article went to press, Groupon customers still had about two weeks left to redeem offers purchased for the second group of locations, so I am predicting the redemption rate for those shops to be around 65 percent.

The Pros

The Groupon deals certainly sparked an increase in sales, and I found myself surprised by the amount of offers that were sold. For the sake of comparison, the 10 shops in the second group average anywhere from six to nine oil changes per day. The numbers achieved through Groupon represent roughly triple what the shops would sell on a typical day. The deals also provided us with increased exposure. Website traffic for both groups of shops increased twentyfold on the days deals were advertised. So, as far as raising awareness of the brands I own and the services the shops offer, Groupon proved to be a solid advertising vehicle.

The Cons

There were some downsides to the deals. While the increase in customers was welcome, I learned that the level of traffic often left staff feeling a bit overwhelmed – especially at the beginning of the redemption period, when the majority of customers took advantage of their deals. Based on our experience, I would recommend adding another employee to the front counter. If that is cost prohibitive, consider recruiting a family member or friend to help provide additional support.

Unfortunately, service can also take a hit when traffic increases, because shops sometimes struggle to keep up with the jump in demand for services. Because they are Internet savvy, Groupon shoppers are more likely to complain online (through Yelp or other rating sites) about service lags or other problems. Again, that’s why it’s key to ramp up staffing once a deal goes live.

While I was glad to see a jump in sales, because of the heavy discounts offered, those transactions were less profitable than usual. Because you’re taking a hit on profits with daily deal services, I think you have to approach any Groupon or LivingSocial deal not as a huge moneymaker, but rather as a mechanism for bringing new customers through the door. The goal, in my view, is to create long-term relationships with these new customers, so I suggest creating deals that require multiple visits, such as a package of oil changes.

Is It Right for You?

The Groupon deals brought in a mix of customers, from hard-core coupon shoppers to high-income customers looking for value. We did see a few customers return for bigger ticket services, but there were also customers who simply came in to redeem the offer and were extremely wary of purchasing anything else. The target of my shops is middle- to upper-income households living within three miles of the store. Those customers tend to be less price conscious, but more focused on convenience and service, which is where my shops shine.

Groupon, however, pulls in a broader range of shoppers, who may not share those same traits. As a result, while I might test Groupon or LivingSocial again for a few of my shops, I’d never use it as a large-scale marketing tool because it’s not specifically targeting the customers I want. Instead, I’ll probably stick with direct mail because it allows me to more strategically zero in on the customers who are the best match for my stores.

If you’re a store that caters more to bargain customers, a daily deal site might be a perfect fit. If car count is suffering, daily-deal sites may also be part of the answer to that problem.

The Impact of Daily Deals

The reality is that daily deals have placed downward pressure on pricing in the automotive repair business, particularly on oil changes. The oil change is typically used as a hook to attract first-time customers, but if consumers can find low prices everywhere and virtually anytime thanks to daily deal programs, shops will need to start distinguishing themselves in other ways. My shops set themselves apart by offering convenience and high-quality service. Each shop offers a three-year, 36,000-mile warranty on repair work. When it comes to discounting, the shops offer a certain amount off of any repair or maintenance service rather than tying a deal to a specific service. It’s not unusual for the stores to also package maintenance items together for a single price to offer greater value.

Offering daily deals may provide a boost to your business, but keep in mind that they can’t be the only tool used to attract new customers to your shop.

“I had heard a lot of mixed reviews about daily deals, but the only way I was going to find out if these services were a viable marketing tool was to test them myself.”