Groupon, LivingSocial, and other daily deal sites are a great way for smaller businesses to introduce their offerings to their local communities. It's very difficult for small businesses to gain this sort of local exposure on their own, and daily deal sites arrange it for free. But are they right for your business?
First, you need to know how a daily deal is set up. Typically, a business creates a discounted offer, and then the deal website takes a part of the profit. In exchange for offering a set number of deals (usually at a loss), the business's information (along with a small advertising blurb) gets emailed to anyone local who is signed up through the deal site.
The benefit of offering a special offer through one of these sites is mostly in the exposure. Even people who don't purchase the deal will read about the company and possibly check out your business' website. Those that do purchase the deal become even more familiar with your business. Either set of people are likely to make a future purchase, which theoretically means an increased customer base.
Unfortunately, it doesn't always work that way. When a daily deals customer makes their actual purchase from a business (using their discount code), that business has to convince them that not only are they worth the deal price, but that they are also worth the full price of their goods or services. Many of the daily deals customers are looking for a one-shot discount. If you want to create repeat customers, you need to really wow them.
That being said, many businesses do see an improvement in sales, although some businesses naturally do better on these deal sites than others. Museums and family activities almost always do well, and it's not hard to convince people to return again. Sports and recreation (and other 'fun' activities) also see a higher number of non-discounted sales after offering a daily deal. Other businesses that do well include restaurants, apparel, travel and tourism, health and personal care and photography services.
So, should your small business consider using a daily deals site to boost brand awareness? If your business is able to put off immediate profit for the opportunity to improve profits overall, or if similar businesses in your area have done well with Groupon and similar sites, it's something that you may want to look into. It's hard to beat the exposure these deal sites offer, and many companies see an increase in their sales numbers after participating as a featured offer. Even if the initial profit is low, the long term effects are often worth it.