This brings us to the critical success factor for all these daily deal companies. Getting repeat customers from the 5 million strong e-mail list is easy. Making your real customers, the merchants, successful with the product is the challenge....
We think a winning formula is sitting in front of anyone who has strong relationships with these local merchants — especially a firm that has a history of helping them with Web marketing and promotions. Whoever teaches the merchants to use these new techniques will own this market.
Jim and I think alike (except getting a 5 million strong email list may be a bit more challenging than he makes it out to be). I am not a pundit, I am an operator. An operator that is seeing double digit traffic and revenue growth. The deals market is a large opportunity that is not going away anytime soon. The key to success is helping merchants use online promotions to get and keep new customers while offering great deals of value to consumers.
20 percent of deal users are returning for full-price purchases at restaurants, bars, salons, and other retailers
36 percent of deals users spend more than the voucher value when visiting a merchant
22 percent of them never redeem the vouchers they've paid for
55 percent of businesses reported making money on their promotions, 27 percent lost money, and 18 percent broke even
48 percent of businesses planned to run another daily deal promotion, 20 percent indicated they would not, and 32 percent didn't know for sure
70 percent of marketers in special events, health, and services made money on their promotion.
44 percent of the restaurants surveyed financially profited from the promotion, and only 36 percent of them intend to run another daily deal
The was been a lot of chatter about how there is no way a business can make money with a discounted deal. This study shows what I have been hearing from merchants, properly structured deals work. With 73 percent making money or breaking even on their promotions deals are an online marketing method that works.
Yesterday I wrote an article about deals not being evil in response to a series of articles that are appearing on TechCrunch. At about the same time the Wall Street Journal published an article entitled Daily Deals Rescue Local-Ad Market that was a bit more balanced then the stories coming out of TechCruch. It includes a great chart that shows the fall of newpaper and yellow pages spend and the growth of digital and deals. Merchants are shifting their marketing spend.
They are doing this because digital and deals are effective.
Money quote.
Rodney Fong, president of San Francisco's Wax Museum at Fisherman's Wharf, for one, is a convert to the daily-deals model. Just three years ago, he said the museum spent a quarter of its marketing budget on newspaper ads. Now it spends almost nothing on print ads, shifting its focus to daily-deal sites. "I'm sold on it," Mr. Fong said.
Rocky Agrawal seems to have quite the big one with the online local commerce world. I am not exactly sure why, but over the course of the past few days I have gotten quite a few notes about his Why I Want Google Offers And The Entire Daily Deals Business To Die article on TechCrunch. It is one of a series of articles about the online local deal industry.
The specific article above seems somewhat akin to a certain president wanting to attack a certain country to take out a certain leader. I don't really understand why as Rocky seems to be a pretty rational strategic thoughtful deal industry guy. As an example he has a great article on Best Practices for Businesses Considering Daily Deals. Here's the first section.
Before you agree to a deal
Make sure deals is right for you. The marketing around daily deals implies that it’s an honor to be selected and that you should be thankful for the opportunity. It’s the “Who’s Who” model — flattery works. It’s not an honor. You should analyze the numbers and make sure that the deals work for your business. Talk to other similar businesses about their experiences. Some of the key questions to ask: How many of the customers were your existing customers? How big was the initial demand? Did you have to staff up extra? Did people buy more than the deal value? Did new deal customers come back? If the deals were redeemed mostly by existing customers or new customers didn’t come back, those are bad signs. Only run a deal because you have done analysis and realized that it’s good for your business, not because everyone is excited about Groupon. I talked to one merchant who ran a Groupon because a restaurant across the street was full after it ran a Groupon. She ended up losing $10,000 on her deal.
Don’t believe statistics from your sales rep. The reality is that none of the deal companies have the technology to accurately track the most important metrics to the business. You’ll hear stats like 95% of merchants are satisfied. 98% spend more than the deal voucher. You should ignore them. 95% of people wouldn’t agree that the Pope is Catholic. On a $20 Groupon, they might spend $20.05. Yes, it’s more than the voucher, but that extra nickel doesn’t help you.
Stick to your guns. Your sales rep might tell you that in order for your deal to be selected to run that you must make your offer more generous. By, for example, increasing the cap or raising the value of your voucher or increasing the share to the deal company or removing restrictions on a deal. This is akin to the car salesman telling you that his manager won’t let him do the deal. If you’ve worked out your numbers and know what your comfortable with, stick with them. “Losing” the opportunity to be featured is better than making a bad business decision.
Make sure you understand the terms. The daily deal is not some Internet magic; it’s a complex financial instrument. The dynamics are very different from buying a newspaper or magazine ad. Give it the same amount of thought as if you were taking a $15,000 loan. See my analysis of the Groupon merchant agreement.
While much of Agrawai's writing is thoughtful like the as the above demonstrates major points are either overlooked or ignored in the TechCrunch rant.
Despite some high pressure sales techniques by some companies in the space no one is forcing merchants to sign up for online local commerce deals.
Many merchants love deals and are signing up for annual contracts with specific providers.
There is no concept of consumer frequency in his analysis.
Daily and weekly alternative newspapers are dead or dying. Deal companies are one of the few alternatives that local merchants have to market themselves.
Deal companies are performance based with real metrics.
Rocky closes the TechCruch article with this:
If you know of a business that has run a daily deal and since closed please email dailydeals@agrawals.org
Why the axe to grind? That I don't know.
Agrawai refers to Google Offers as "pretty close to evil." I signed up for my current gig at Half Off Depot to do good not evil. We are providing real value to both merchants and consumers. If anyone wants to know of hundreds of businesses that are thriving as a result of online local deal marketing drop me a line, I would be more than happy to connect you with a few of them.
So Groupon filed its S1. The length of the document and the analysis of it is staggering. So this is a blog. A web log. Here are some of my favorite reads on Groupon's filing.
Who Will Be Left Standing Post-Groupon IPO by Erika Morphy of Forbes. An analysis of the daily deal market. Not sure if I agree with her assessment of AT&T, never really seen them as sophisticated at marketing in unregulated markets.
Groupon S-1: Mind The Ratios. A nice article by Jeff Bussgang of Flybridge Capital about deteriorating customer and merchant growth ratios. Those Boston VCs like to pound the numbers.
Groupon IPO: pass on this deal by David Heinemeir Hansson a partner at 37Signals (whose founder Jason Fried sat on the Groupon board for a few years) has a blistering attack on the use of Adjusted Consolidated Segment Operating Income or ACSOI as an accounting metric. Groupon without marketing expenses is not Groupon at all. Indeed.
My bottom line. Groupon is the leader in a huge market and its growth has been astonishing. They are going to go public and cash a lot of people out. They made the market and are going to be a market leader for some time. A $20 billion valuation seems a bit rich.
So the first ever Digital Summit is taking place in Atlanta next Monday and Tuesday. If it is anything like the Internet Summit held in Raleigh every year this promises to be a good show.
I am looking forward to the venture capital, online advertising, and future of media sessions as well as the keynote by Gary V. I am fortunate enough not only to be an active participant but have the opportunity to jump up on the stage with four entrepreneurs. I am going to be moderating the Internet entrepreneurship panel.
I will be talking with Jamie Bristow Founder, Mynonprofitmatch.com; Mitch Free CEO & Founder, MFG.com; Tim Harrington CEO, eRollover (now FiPath); and Michael Tavani Co-Founder, Scoutmob on Tuesday afternoon. Good group. I know Mitch, Tim, and Michael pretty well and look forward to meeting and learning more about what Jamie is up to. By the time we get to our part of the agenda we will be the only thing standing between the crowd and the bar so we intend to have a snappy fun time.
This bad boy is about to sell out. ATDCF50 gets you $50 off the price of admission. Regardless of if you are going or not what do I need to ask this esteemed group?
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