Mitch Goldstone co-founded his business, 30 Minute Photos Etc., back in 1990 with his partner Carl Berman. Based in Irvine, Calif., Goldstone said the business, which developed photos taken with Kodak or Fuji film, thrived by working with customers who lived within three miles or so of his shop. In fact, sales at his store ranked in the top one percent of sales for any photo dealer in the country. Then, in 2006, the wheels came off: Digital photography had arrived.
“Everything stopped and I saw the risk that I could go out of business,” Goldstone says. “In order to succeed over the long run, I realized I needed to be constantly reinventing myself.”
The Groupon Effect
Goldstone quickly realized that he had printed hundreds of thousands of pictures for customers over the years—pictures those folks might now want to have digitized. That led him to re-create his company, which he renamed ScanMyPhotos.com in 2007, and its business model, which would now be solely focused on scanning photos.
While he knew there was demand for his services in his local market, Goldstone also realized that he could target a far wider audience via the Web as customers could simply mail him their photos, which he would scan onto a DVD and mail back along with the originals. But as a small business with four employees, how could he afford to market himself nationally?
The answer, it turned out, was Groupon.com—the daily deal site that has reshaped how consumers make online buying decisions.
In 2009, Goldstone began offering Groupon deals that offered to scan 500 photos to a DVD along with free shipping and handling for $29, a 70 percent discount off the full price. That deal has proved enticing to thousands of people in different cities across the country. For example, he sold more than 1,800 orders in San Francisco alone over a two-day period. In total, Goldstone says he has since sold more than $3 million worth of scanning packages through Groupon over the past three years. “There is a huge market for generations of old family photos that can be preserved and shared digitally,” Goldstone says. “And Groupon is a great way to advertise my business on a national level.”
Despite success stories like ScanMyPhotos.com, Groupon—and the growing number of daily deal sites like it—has drawn its share of criticism. Some small-business owners claim that the daily deal model, where a certain number of customers need to purchase a coupon in order for it to be redeemed, has ruined their businesses by bringing in too much business at a discounted price. Not to mention they also have to share the revenue from the deal with Groupon.
That’s why experts say that the companies that tend to do the best with the daily deal model are those that sell products or services with very low variable costs. “A good example would be an airport parking lot company because almost all of the operation’s costs are fixed,” says Alex Membrillo, co-founder and CEO of Cardinal Web Solutions, an Internet marketing agency based in Atlanta.
Coupons should also be used strategically—offered sporadically and promoted heavily—when they are offered, says Jonathan Rick, chief executive of The Jonathan Rick Group, a digital communications firm in Washington, D.C. “You want to condition people not to expect coupons,” Rick says. “Otherwise, they'll just wait for the next one. You want coupons to be considered special, not routine.”
Dan Soha agrees. He is the owner and founder of Argoz, an online retail shop that sells high-end argyle socks. While Soha understands the value of participating in deal sites like DailyCandy, Fab.com and Thrillist, he also worries that customers won’t buy unless they get a discount. “My hope is that I’m making awesome socks people think are worth paying full price for,” says Soha, who launched his site in 2011.
Photo: Dan Soha/Argoz
That’s why he mostly uses such deal sites to clear out older inventory, or to offer a deal where someone can get $25 credit for $15, which, since his socks cost $15 a pair, means that a customer will need to spend some extra money in his store to take full advantage of the discount. “I want them to spend something, even if it's just $1,” says Soha. “At the very least the extra purchase gets them committed.”
Back Up Your Deal
At the same time, experts point out that attracting a customer by giving them a discount of any kind makes it more difficult to get that same customer to make another purchase without a similar coupon. “We have found that about 20 percent of daily deal users stick and become repeat customers. However, to achieve that 20 percent retention rate, it is critical to have every person that claims the deal enroll in your e-mail marketing campaigns, and then you have to follow up with product or service updates and additional offers.” Membrillo says.
Case in point: Goldstone at ScanMyPhotos.com not only sets his deal price at a point where he still earns a profit on every new customer, but also offers a menu of other services that customers can tack onto their bills when they visit his site to redeem their coupons. Goldstone says that the average customer adds about another $30 worth of products—an extra DVD of photos for example—to his or her bill on the first visit.
Perhaps more important, Goldstone says, is to create repeat customers from those you meet through a daily deal. To do this you need to have what he calls “collateral materials”—such as a blog, a list of articles the business has appeared in, or even video testimonials—that demonstrates that the business does what it claims to do. “Once a customer is at your store, the collateral materials can provide an independent way for people to become even more familiar with your product,” he says.
As an example, Goldstone says that he created a video with the United States Post Office: For $220, customers can send in up to 2,000 photos via a flat-rate box to be scanned—a product that he says generates many repeat customers. “Having a video where the USPS talks about us lends us a ton of credibility,” he says, noting that the average household has some 3,500 printed photos.
By creating appealing ways for customers to digitize that inventory, Goldstone has been able to generate substantial return business from customers he originally interacts with through Groupon. The result is that the average customer who comes to the ScanMyPhotos.com site through Groupon spends about $350, something that has helped his business expand into a new 6,000-square-foot facility while adding 11 employees to help cover orders that arrive 24/7.
Goldstone’s success with Groupon has him excited about the potential for further growing his business, which he thinks has just scratched the surface of the potential market.
“There are an estimated 3 trillion photos out there sitting at home in albums,” he says. “And I see Groupon as the number-one way to advertise my service to all the people out there who need it.”
Photo: Joseph Valenti / Bloomberg via Getty Images