If you run a business, especially a restaurant, you have undoubtedly heard of Groupon. The internet based storefront has made a fortune in recent years by working as a middle man between businesses and consumers, providing businesses with hoards of customers, and providing consumers with rock bottom prices on everything from spa treatments to driving lessons. Well, there is a new kid on the block, and he is playing by similar rules. Amazon's Local Deals aims to take market and mind share away from the ubiquitous Groupon. The Cambridge, Massachusetts based giant may be new to the game, but the Amazon name has been around for some time, and those guys know a lot about the internet. More importantly, they have a huge wealth of knowledge about how and where consumer's spend their money.
For those of you that have not yet jumped onto the online voucher bandwagon, here's a brief introduction. As a business, you offer customers the chance to pre-pay for a service or good through Amazon Local, incentivizing them to do so by offering a substantial discount, usually no less than 50%. In turn, Amazon takes a percentage of
that already discounted price - they call it a "referral fee" - as a sort of advertising commission. These rates are variable, but usually hover around 50% of the price the customer pays. When I contacted Amazon Local regarding the percentage they take, the representative informed me that for first timers the split is usually 60%/40% in Amazon Local's favor. Their pitch is that you get exposure and professionally curated advertisements targeted at your specific audience, all without any upfront costs. This is partially true, companies like Groupon are growing at astounding rates as consumers show their eagerness to adopt this pre-paid, discounted voucher model. Sounds great, but the downsides are not all obvious. Since this is Tablebases.com, we are going to focus on what to consider when you are thinking of running a deal for a restaurant.
The first obvious one is the massive price reduction that businesses face when entering into one of these deals. Fifty percent of what you would normally charge is out the door immediately, just gone, then ~60% of that already reduced price goes to Amazon Local. That leaves the operators with just 20% of their normal revenue from customers who purchase the deal. For example, if you run a deal where the customer pays $25 and it is worth $50 in your restaurant, you would only actually be receiving $10 per customer. If we consider $50 to be the hypothetical average bill per head, that means that after serving 100 customers at this rate, you would earn $1000 from the deal, whereas you would have earned $5000
had they all been regular paying customers. That's
before operating costs. After expenses such as utilities, supplies, employee payroll and the food required, your restaurant may end up breaking even at best. For most restaurants, this is not a realistic means of making money. The situtation will be different for every business, so do the math for yours. How much does it cost you, on average, per customer? Is eating the cost of a few hundred visitor's meals worth the chance that they will return at full price? These are important thing to consider.
Another huge downside to these types of deals is how they work in the first place; they are
online. The internet is like the chatty co-worker at the office that has already spilled the beans on everyone's work affairs before lunchtime. These deals go viral. Part of that is through word of mouth, people like to brag about getting a good deal, but another part of it is inherent to how Amazon Local works. They target your
local customers, which invariably means that some of your regular customers will have access. This means that a patron who would have previously been happy to spend $40 for $40 worth of services from you can now net you 75% less revenue. Worse still is that these types of deals are in constant rotation, so as soon as your promotion ends (and even while it is running), customers have access to similar deals from other, competing restaurants.
Our advice would be to use caution; make sure the terms of your deals are well understood and within your capabilities. Ideally, tools like Amazon Local could provide a temporary boost and generate some buzz for your restaurant, so you can go back to business as usual. The most important thing to remember is to continue to provide great service. Have a chat with your staff, and make sure that everyone who comes through the door is treated exceptionally, and increase your chances of getting customers to return. The biggest mistake you can make is to run multiple deals. If your business cannot stay afloat without Amazon Local, chances are your time and resources (i.e. the $3000 from our earlier example) would be better spent investing in traditional marketing, social media, and improvements to your restaurant. For advice on marketing with a small budget, check out our article
Simple Social Media Tools for your Restaurant. 
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