(Editor’s note: Ken Ryu is Founder & CEO of GetQuik. He submitted this story to VentureBeat.)

Marketing vehicles tend to come in two varieties. The first (and most common) is the advertising method – which has resulted in things like terrestrial radio, broadcast TV and social networking. The more intriguing style, though, is entertainment-based purchasing – which has brought about things like QVC, Swoopo and now Groupon.

The psychology and success of the Groupon effect is well documented.  By making the purchase experience exciting, the site has been attracting consumers at a phenomenal rate. But what about the companies that offer deals through this or other ‘deal of the day’ sites?

We’re still in the early stages of analyzing the business impact for merchants who offer these deals.  But Groupon could potentially become too powerful for local merchants.

Local companies didn’t have much to worry about when Groupon was generating deals in the low hundreds per day, rather than the thousands it does now.  The deals are positioned as loss leaders, meant to bring in new customers.  However, as the number of people taking advantage of a deal has grown, some businesses are absorbing a much larger cost than they had forecast.

Deal of the day sites are best suited for businesses that are hidden gems – places that have great service and value-proposition, but lack  branding and customer awareness.  Groupon and other deal of the day offers are accelerators for a business’ pathway.  The best candidates for these are newer companies on the rise, but without a solidified customer base yet.

At GetQuik, we’ve had some experience “breaking” a local merchant.  With the current excitement with “deal-of-the-day” offers, we recently launched a “Restaurant-of-the-Week” promotion – but by the second week, the restaurant we selected was overwhelmed by the offer takers.

Two of the chefs of the overrun restaurant quit in frustration with the insane demand that the offer generated.  (They did come back to work after a day to cool off.) But it was a lesson for all parties involved.

Ultimately, we came up with some golden rules for small businesses that are considering signing up to offer a deal-of-the-day:

  • If your product or service is weak, fix it first.  Having tons of people discovering your store offers a sub-par value-proposition or weak customer-service experience is not a good way to grow business.
  • Understand the customer base that is going to take the offer.  Are they going to repeat after the offer ends?  Are they going to create buzz, testimonials, positive Yelp! reviews, or word-of-mouth referrals?  Understand the goal of the program and drive towards those metrics.
  • Be careful not to weaken your brand with too many “deal” offers.  The excitement that surrounds “Deals of the Day” is the perceived scarcity of the offer.  If the deals pop up left and right, the impact of the offer will weaken, and customers will often wait till the deal hits again.
  • Understand the impact on your staff, and make sure to get their buy-in on the program before joining in.
  • Work with your Deal of the Day program coordinator to set max limits on the offer.

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