Inc. has covered the Daily Deal and Local Deal space quite extensively over the last year or so. In fact my colleague Eric Markowitz has reported on the death of daily deals (and their resurrection) in the last few weeks. As a business owner, what are some practical questions to ask yourself before creating a daily deal offer, signing up for a location based deal service, or making your own go at it?
At today’s Inc. 500|5000 panel called “Deal or No Deal,” I interviewed Tristan Walker, Director of Business Development for Foursquare, Digital Consultant Marci Weisler and Daniel Kim, CEO of RedMango Frozen Yogurt to get their best tips for businesses on using daily deals and location based services.
First, it’s important to know who you’re trying to reach with a deal. Kim and Weisler both talk about using deals to generate new customers. “The purpose of these deals is to generate trial,” said Kim. “It is also and more important to obtain repeat customers. Make sure that the offers get into your target demographics so that it helps filter out consumers who may only redeem your offer because the price is too good. Daily deals is a marketing strategy, so make sure you're executing that strategy to the right group of people.” Weisler added “Structure your deal to attract new customers, and when they get there, give them reason to come back again. If you decide to do a deal, be sure that the demographic of the deal site you use matches your target audience.”
Walker asked if new customers or customer loyalty was the better goal. “Each leads to two unique and very different paths to execution and also investment profiles,” said Walker. “Traditionally (by rule of thumb) it costs 7 times more to acquire new customers than retain loyal customers. Fortunately, services like Foursquare allow our merchants to experiment and find the right strategies which suit their needs over time, free of charge. Invest time in these services; learn what's best for you as a business owner and most importantly commit to seeing it through via execution (training, marketing etc).”
Continuing to think about loyalty, Walker described a loyalty exercise done by AJ Bombers bar and restaurant in Milwaukee. The owner used Foursquare's badge feature to encourage customers to visit. Reaching out to his customers via social media, he invited them to the bar to obtain the "swarm" badge which is only given out when more than 50 people check into a venue during a short period of time. Over 140 people showed up, they all earned the badge, and the restaurant got 140 paying customers in the door. Use of this Foursquare feature was free.
Back to daily deals, think through how much doing this will cost you, all in. There are many different kinds of costs. Kim noted you must “include your labor and cost of goods sold, and compare this cost to other advertising options you have. Ensure that the option you choose will yield not only the highest revenue, but also the highest guest satisfaction.” You need staffing to ensure you can handle a flood of new business, according to Weisler. Then you have to make sure the staff is ready, which may require time and effort. Kim adds “Train all of your managers and staff on how to talk about and redeem daily deals, and ensure that they accept them openly and willingly. Daily deal groups market your services very well, so consumers will arrive with the highest expectations. Make sure you don't disappoint them.”
For a practical example, I spoke with Founder and VP of Sales Mike Connolly at StinkyCakes.com. Their site is a fun and practical way to give diapers and other baby gifts. “We say that we provide the cake and baby provides the Stinky!” Connolly did a Groupon deal in December 2010 and January 2011, reaching 5 suburban and small metro areas like Springfield, MA, Daton, OH and Westchester County, NY, with a potential reach of 750,000 subscribers. “We offered $40 worth of product for $20, for any items customers wanted. If I were to do it again, I would offer this only on certain items. Most people used exactly what they bought credit for; we didn’t have many upgrades. However, we priced it properly to cover shipping and cost of goods.” Connolly said he used this offer as a marketing, and not a sales tool, as Kim suggested above.
Stinky Cakes created segmented email lists of both the purchasers from their Groupon deals and the gift recipients. He was able to increase his marketing lists at a low cost per acquisition of customers. “We were also able to find targeted demographics and areas where people like our products, and we’ve since used targeted Facebook ads in those areas to obtain new, full price business.” Connolly hasn’t used Groupon again, due to their policy of requiring 50% of the deal price as their payment. His online shopping cart software now allows him to create his own deals, and he’s planning a $20 off any purchase offer to all his previous deal customers. “We almost consider these deal customers like our wholesale customers, and we have enough margin to cover their purchases.” Connolly is negotiating with other deal providers to find a better potential deal structure that would allow him not only new customers, but also a profit.
What are your top tips for using location-based services like Foursquare or daily deal sites? Please share in the comments below.