Issues Business Owners Face When Using Deal Sites

Recently, we discussed certain issues that both donors and fundraisers face with current online fundraising sites. Now I want to talk about online deal sites, another sector FundCru is revolutionizing.

We’ve all been there: you receive an email or an advertisement or a message from a friend telling you how if you buy a coupon from this or that website you’ll both save 75% on something you kind-of-sort-of already wanted. It’s incredibly appealing to save $40 off of a $70 dinner or to buy sports tickets for half the face value (as a fan of a certain New York team, these tickets have the added value of including an entire section all to myself). It almost looks too good to be true.

However, there are several problems with this way of doing business, especially for the vendors and merchants. The first one is the discount on the price that needs to be cut in order to make these deals appealing to buyers. Saving 60% — 80% on something is far more appealing to customers than saving a more reasonable 20% — 25%, but cutting prices this drastically comes with its own risks.

To put it plainly, it’s almost impossible for the merchants to make any money this way. According to Toast.com, the average profit margin for restaurants in America is around 3% — 5%. Offering such a significant coupon cuts into the cost of ingredients, employee wages, the overhead costs of maintaining a restaurant, and the owner’s take. Each meal subsidized by a coupon actively hurts the business. I use restaurants as one of the most striking examples of online discount sites hurting profits, but virtually all businesses feel a squeeze when a new customer walks in with a coupon.

The hope is that by offering these discounts, businesses are enticing new customers into their establishments, hopefully to become regulars. Unfortunately, very few ever do. Restaurants may be able to draw people in with their food, but it’s rare for anyone to change their eating habits because of one good experience. Other products and services will also see few returning customers, as people who are in the market for personalized crafts tend to look for either local or known artists, or search for the cheapest prices online.

Likewise, people who want lessons, housecleaning services, and almost every other thing you’d find on a coupon website will still very likely shop around, even after their first purchase with a coupon. Many coupon sites also allow businesses to limit the amount of coupons sold, and this can be incredibly difficult to optimize for operations who have never done this before.

Any business utilizing these sites are running the risk of earning a reputation for being of inferior quality. If a customer’s first impression of a product is that it was on sale, that person may feel there is little or no demand for it. To bring us back into our imaginary restaurant, a customer with a coupon may find that the normally upscale establishment is just average due to the final check. Plus, any part of the meal that goes over the limits of the coupon (an extra drink, perhaps, or an appetizer) often comes as a shock to a customer looking to pay less for a meal. The same principle applies to crafts and services, of course. The product or service is seen as being cheap and when any additional modifications are added, the real price comes as a shock.

Ultimately, utilizing online coupon sites comes with risks for any business. By offering lower prices, a business will cut into its profits, and often eliminate them entirely, to court new customers who often won’t return for a number of reasons. It’s tempting to offer massive discounts in the hopes that people will come back to you when they want something again, but it misunderstands what customers are looking for when they purchase discounts.

FundCru addresses these concerns in multiple ways, including offering a lower fee than other comparable sites, allowing customers to feel good about part of their money going to a good cause of their choice, and giving merchants new and expanding markets every day.

In an upcoming post, we’ll talk about how FundCru is working to connect businesses and customers by allowing both to support worthy causes and also generate business.