By selling $10 gift cards for $5, Starbucks set a daily deals record in Canada, working with Living Social.
When it comes to the “daily deals” market in Canada, companies such as Groupon, Teambuy and Wagjag lead the way. But the success of a recent promo by a relatively smaller player on the Canadian scene, Living Social, serves notices that a new contender is on the scene and that the industry as a whole is growing strongly in the great white north.
Living Social recently partnered with Starbucks Coffee for a deal that offered a $10 gift card for $5. While they’ve offered the promotion before, for the first time they also included Canada. The promotion sold 150,000 of the $5 offers to Canadians, generating $750,000 in sales volume.
According to the Canadian Deals Association (CDA), an industry group for the Canadian deals industry, it smashed the Canadian record for most customers who bought a daily deal and recorded the highest sales volume that wasn’t for a spa service.
How does this deal work out for Starbucks? Here’s how the CDA breaks down the likely revenue model:
“At the very least, they have more than gotten their money’s worth in terms of advertising and exposure. 150,000 vouchers were purchased, meaning consumers will walk into a Starbucks 150,000 times over the next few months and order their coffee, Tea, muffin. Starbucks most likely negotiated a favourable rate from Living Social, certainly not 50%. I would guesstimate the rate at 25 per cent or 30 per cent. As such, Starbucks gets $3.75 from the sale. The cost of a $10 sale (the voucher value) at Starbucks is a lot lower than $3.75. So Starbucks already makes money on this offer. If say 30% of consumers purchase beyond their average buy, then Starbucks makes that extra revenue as well. The offer gets 150,000 vouchers in a Starbucks. That traffic will translate into revenues and profits for Starbucks, great advertising and word of Mouth as well. Oh, and with a $5 voucher, the tendency is a lower redemption rate. Meaning, Starbucks should expect that 15 per cent of vouchers will NOT be redeemed ever.”
Before considering partnering with a daily deals provider to promote your business though, it’s advisable to be aware off all the numbers and the terms and conditions, and be realistic in your expectations. Not every business is Starbucks, after all. Be mindful of the fees and margins, and remember that many redeemers are likely to be one-time visits – convincing them to come back without the deal is what will make the promotion worth it, or not.