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September 20, 2010

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Michael Favia

Hey Paul. As a developer of a number of these types of sites I can tell you that the margins are decreasing as the market floods with new competition. Like most things the early adopters pay a price for the privilege of scarcity and exclusivity. These days though the take on the daily deal space is fast approaching 30% not 50%. Its an efficient tool if it doesn't succumb to a poor signal/noise ratio. Your points on loyalty and devaluing the brand are valid though. Which is why I tend to suggest it to young businesses looking to introduce themselves to a new local market.

Paul Chaney

Thanks for the heads up on the decrease in the percentage. I think the fervor over the approach will run its course and die out, only to be replaced by the next "big" thing, whatever that is. (Always something.)

It's good to hear from you. I wondered what happened with you since the BSG days.

Kerry DesHotels

Well thought out and presented Paul. There are certainly pitfalls to these discount programs, disguised as loyalty programs, that most small businesses don't think out to the end.
There are other loyalty programs, based on payment for performance, relying on the use of "Complimentary Currency" that do not require discounting, which might better fit most locally-owned business, worth checking into. One worth mentioning is Business Express, located in Lafayette, which helps keep money in the Acadiana economy by enabling local business to do business with each other.
The principle is that a business's biggest advantage is the markup on its product or service. If a business can leverage it's purchases based on it's cost-of-goods it can save a tremendous amount of money.
Labled Mutal Credit Alliances, they charge a small fee (10%) for the business service; which includes doing all the advertising (printed directories and email announcements), managing the website, processing all transactions, posting monthly statements, issuing credit lines, and hosting periodic get togethers for members to network and get to know each other.
They utilize a principle called "Re-directional" Marketing, where customers are re-directed, from making purchases at competing businesses, to the participating businesses instead. So the new profit, brought to the member businesses, is at the expense of competing businesses that do not participate in the "Local Currency" program.
It is easy to become part of, and easy to bow out of if the participant does not feel the program is right for them.
Interested business owners can go to www.businessexpress.com for details and contact information.

Jonathan Trenn

Groupon type of services DO make sense in many cases with several caveats. Michael Favia is right - newer establishments should benefit. That's especially true if the coupon company takes a smaller percentage.

A real problem here is the lack of strategy. It's a new concept that's strictly a tactic with unknown potential results. There is a clear lack of input from, quite frankly, intermediaries, would can help craft a strategy here. Hence, you've got this chaos.

Paul Chaney

@Kerry - thanks for the heads up on Business Express. I assume most cities offer a similar service?

@Jonathan - I think you are exactly right. It's a tactic that needs to be aligned as part of an overall marketing strategy, or not as the case may be.

Also, a word regarding the degree of discounts. In the city where I live, Lafayette, we have Bargain Bee and Seize the Deal. Living Social is making its way here as well (It's in a nearby town and I think they've just hired a salesperson for this area.)

In each case, the discounts are still 50% or higher so far. I'm sure there will be a glut in the market and competition will lower the percentages. It's just not happened here as of yet. That's probably true in a lot of other smaller markets.

Michael Lunsford

Very good article on coupons. I don't have a study handy, but I've personally witnessed people paying the least for a service demanding the most while folks paying the most for the same service demanding the least. That's certainly something else to consider if you're looking into doing any kind of discount program.

Paul Chaney

Thanks for the input Michael. Yes, that inverse relationship between the price paid vs. the expectation of service can definitely be inverse. Yet another reason to be wary of social media "snake oil."

Melissa Ward

Excellent thoughts Paul. I shared a similar opinion when Fox 23 called me for a local report on Groupon. I think it's great for a new business, but they must be aware of the pricing and supply/demand pitfalls. Excellent summary of it all!

Paul Chaney

Thanks Melissa. Gotta look out for the small business owner.

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You may also post lots on blogs and forums which can be connected for your items or services. In the signature line you place a link for your site. In this subtle way you not only develop yet another web page which has a link for your web page, but by participating within the forum or blog you might just have customers there wish to see your web-site and could choose to buy your product or services.

You also want to put your link within your e mail, on your business cards, on your letterhead, and anyplace else you could. Having your personal business enterprise, whether or not on the net or offline is really a method of life, not a nine to 5 job. So make certain that you are able to do whatever it takes to be successful. Because should you usually are not able to operate tougher than you ever have prior to, possessing your own organization just isn't for you personally.


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