There is incredible potential for group deals to bring in new customers – but often just as great potential that the avalanche of people wanting to a good deal can overwhelm a small operation in the short term and provide no long-term payoff.
Now Constant Contact – which helps small businesses build, manage and create marking campaigns around customer e-mails – is entering the fray. Constant Contact's CEO Gail Goodman tells The New York Times that her company's new SaveLocal aims to minimize the costs for small businesses of online deals while still delivering the benefits. The model is based on research, she says, with Constant Contact's customers, 70 percent of which have fewer than 10 employees.
"We started talking to our customers about what did and didn’t work for them with Groupon and LivingSocial," Goodman told The Times. "We knew there had to be a better way, but it took us until the beginning of last summer to come up with what we thought would be a twist on the model that would make coupons work.
Unlike Groupon or LivingSocial, who send coupons to their list of subscribed dealhunters, SaveLocal's coupons are sent only to a small business's e-mail list and Facebook followers, offering them a deal plus an incentive to share the deal with their social network. The person sharing the deal receives the incentive – say, an extra $5 off, or whatever the business decides – regardless of whether anyone he or she shares it with buys the deal. (Groupon sharers only receive the incentive if the person referred becomes a customer.)
"We think the way to find your next great customer is through your existing customers, rather than through a big list of consumers who don't know much about you," Goodman said.
Wondering if the point of Groupon et al is the access it may give you to a huge list of potential new customers? Goodman says about a fifth of the people responding to SaveLocal are new customers for the merchant – and because they're receiving the offer through a current customer, they're more likely to be local than people responding to daily deals, and more likely to turn into loyal customers. SaveLocal also offers a small businesses the possibility of direct contact with the new customer—it hands over email addresses, not something Groupon and Living Social do.
Can't you just offer a deal yourself, without SaveLocal? Sure, though Goodman argues that the service makes it easier to structure and manage the deal – and Constant Contact with gather and analyze the data.
One test case: Robert Clark, owner of the five-year-old Urban Escape Day Spa in Golden, Colo. He was wary of Groupon or Living Social: “The buzz in our industry is, don’t go there,” he told The Times. “You don’t have control to limit the number of vouchers, or when they can be redeemed, and you can end up selling more business than you can handle.” He thought the percentage of new customers who became repeat customers after the deal would be low. And he feared that the steep commission the daily deal sites take – 40 or 50 percent – would put him in the red.
So he tried SaveLocal, offering $20 off a $75 midweek massage to the 4,000 names on his customer e-mail list, along with an extra $10 off to any customer who e-mailed the message to three friends.
He sold 45 vouchers and took in more than $2,000 in revenue. Constant Contact charged him $3 per coupon, for a total of $135, which he said allowed him to stay in the black on the deal. If he had gone with another group deal site, like Groupon, he probably would have had to offer a steeper discount, say half off, or about $37. Groupon would have taken $18, half of each coupon. Selling 45 coupons with Groupon would have brought him $800 in revenue, less than half of what he got with SaveLocal. But chances are the steeper discount would have meant he'd sell far more Groupons, which would have brought in more revenue but also (a) forced him to provide more massages at an unprofitable price, and (b) overtaxed the spa in terms of labor.
Clark said he was happy with the SaveLocal results. “The capture rate has been looking good,” he said, “and we’ve seen some customers come back who haven’t been here in two years.”
Have you tried any daily deal sites? What has been your experience? How do you think SaveLocal would compare?
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