Anthony Bullard - Inside the Box

A fun(if completely serious) retort to Rocky Agrawal’s article “How daily deal companies could improve the merchant experience — and why they won’t”

If you are not an avid reader of Tech Crunch(you should be), you may not be aware that they have recently had a series of guest posts by LBT-specialist Rocky Agrawal(@rakeshlobster) on GroupOn and the daily deals industry as a whole.  Many defenders of GroupOn have painted Rocky as some sort of evil bad-hype-generator, so he decided to write a post on his personal blog to show how he thinks daily deals companies could improve their offering.  The points made are all good ones, but they are sullied somewhat by a cynical one-liner to explain why the companies would not go for said improvements.  I would like to take these points one at a time and examine his suggestions while also putting his nay-saying to the test.

Daily deals are poised to become an incredibly powerful medium for small-business marketing.  It removes the one obstacle small businesses have to marketing - up-front capital.  The dangers are obvious:  over-selling, selling product below cost, existing customer participation, and lack of new customer conversion tools.  Let’s start looking at way’s to improve this with Rocky’s first suggestion:

Limit the number of deals people can buy in a set period of time. This would discourage deal habituation. (Of course, this isn’t in the deal company’s interests. Hardcore cheapskates would just setup multiple accounts.)

This is a sound suggestion, if you limited it to say one deal in this category per week.  That promotes exploration of new businesses within a broad category, but avoids habituation(to say, buy a deal for dinner every night).  Rocky, in criticizing his own suggestion, fails to see that there are numerous ways to authenticate an account seamlessly - Facebook and Twitter integration, credit card information, etc.  There is of course a way in which someone could - if they had to - get around this, but that is truly a straw man.  It may represent less than 1% of daily deals customers.  Next, please:

Limit the distance from the business that a purchaser can be. e.g. you can only buy deals within 5 miles of your home. This would discourage people who are 30 miles away and are willing to drive to save a few bucks one time. The farther away you are, the less likely you are to become a regular. (Of course, this isn’t in the deal company’s interests.)

This is a non-starter to be sure.  You live in San Francisco or Chicago or New York this might work.  You live in Indianapolis, IN?  Or a suburb of such city?  Good luck.  To go to all but the most everyday places, you have to put on your car and go outside this range.  Now, allowing the business itself to set location boundaries that are more specific than the generic “Chicago” variety would be a positive step.  I mean, you might not go 10 miles to go to Suzy’s Cafe, but you might to get laser hair removal.  Now, Rocky says that this is not in the companies interest(a recurring theme, as you’ll see soon).  Why?  No real reason I guess, but I would assume he means that this would sell less deals and therefore less revenue.  But a client may agree to a deal that leads to more profitable income if they are able to tailor it to meet their needs.  And the deals just may work better for the business, leading them to refer more businesses to the service.  So they have similar revenue with a higher margin.  Moving on….

Limit customers based on demographic criteria. (Of course, this isn’t in the deal company’s interests.)

This could help, but then again, it might not.  When you are paying for print or web advertising ahead of time, you have to ensure that you are targeting your demo.  But if you are just offering a deal to anyone with the cash, then you can be more open(this can help a business itself, in getting it out of a demographically-based box).  If this is something businesses are interested in, offer it at a premium.  That makes the deal in the deal company’s interest, maybe less revenue, but higher margins.  This might not always work as I said though, some businesses can generate serious new business by operating outside their normal demo.  Next suggestion.

Reduce the minimum discount for the offer. (This will drive down volume.)

Again, same as above, you might be putting volume down, but margins will increase.  And as Rocky is oft to point out, an IPO-bound company like Groupon might not be down with this, but there is a daily deals company out there that could work with this.  If not, I guess I need to a second start up.  I hear VCs love daily deals companies….

Provide customer contact information to merchants so that they can follow up and invite repeat visits. This has privacy issues and would reduce the need for a business to do another run with deal company.

This is a pretty poor way to attack a really big opportunity.  Keep the data, but allow customer to interact with the customer pseudonymously through Groupon, etc’s web portal.  This is a great way to actually build a relationship with the client and sell them on further deals.  Also, could help in driving new metrics tools for the company.

Train businesses on best practices for inspiring repeat visits, such as getting follows/likes, collecting email addresses. This would have operational impact (training time) plus it reduces the need to do another placement with the deal company.

There is no need for specific training here.  A set of instructional videos would do the same, as well as a client support rep.  The most important thing is ramping up metrics data and usage data so the business understands the scope of what they are getting into.  The real training need here is ensuring that customers have a way to track the sales made through a Groupon/daily deal.   These sites should be supplying some sort of reference tools.  This is very much in the interest of the company and could help to expand the desire to place another deal.  Provide real value to the client, and they will come back.

Send out reminder emails. Hey, it’s been 3 months since you redeemed the Groupon at X. Have you thought about going back there? (They’d rather sell you a deal for another restaurant where they can make a fat margin.)

Useful, if implemented correctly.  If you turn this into a Groupon-run loyalty program, you could check-in at the business with a Groupon linked account and earn special return customer deals.  Another revenue source if you are creative.

Restrict deals to new customers only. This, in my mind, is the most dangerous part of Groupon and the like. You give up 75% of revenue to “acquire” customers you already had. I was talking to one merchant and he was visibly despondent when he was talking about seeing his regulars in line with a Groupon.

Great idea, but how do you implement?   One way is having customers sign-up for above loyalty program before the deal is run.  But there is another danger here, alienating regulars who see new customers getting fat discounts.  But this could be crafted to be a win-win.

Advise businesses to set their Groupon redemption value such that it doesn’t entirely cover the cost of meals and the customer has to pay some portion at regular retail. Cheapskates will check out the restaurant’s Web site and see that this won’t be a freebie and won’t buy the Groupon. (Deal site loses twice: discouraged cheapskates who don’t buy and commission on the portion that is paid at full retail.)

Good idea, but I don’t think this needs to be a formal advisement.  They could provide a category best-practices guide once they actively track metrics.  The problem is real though, volume would go down as real cheapskates might skip out - but what is the real number of those?  Some daily deals clients report that as a rather low number.  And that would help the deal succeed in the long-term, which might lead to increased listings.  The salesperson’s commission is what’s really the painful part here, but we’ll address that later.

Allow users to opt-in to a business’s email list at the time they purchase the deal. (This would mean losing some grip over the customer relationship.)

Prompt users to follow business on Twitter at time they purchase.

Not needed, see above.

Force tipping at the time of purchase. A standard tip based on retail price could be added at time of sale. (This would deter cheapskates from buying deals.)

More options are great, but I don’t think this is the way to approach this.  I would instead advise businesses to offer a 10% revenue share on Groupons/daily deals with their tipped employees.  If there are some cheapskates, employee morale won’t dip too low and if tip performance is better than expected, employee morale will increase.  Interesting concept though.

Enforce restrictions at the point of purchase. If a business has stated only 1 item can be purchased, this should be enforced to the best of the systems ability, like checking email addresses and credit card numbers across accounts. (This would eliminate some transactions.)

A unique ID for each purchased deal would do wonders here.  Once again, simple tools.  But Frauds are everywhere, and always represent a tiny percent of transactions.

Focus sales efforts on categories where the daily deal creates a real win-win, as opposed to preying on businesses who don’t know better. (This would dramatically reduce volumes and revenue.)

This final point hits home to the point.  ”Sales efforts” are lame.  Sales that are client-driven and organic will build the business.  Having people on the streets to market the business is great, but pay should be based on uptake, not per-deal commissions.  Any business should be able to create their deal with a form and a template and call from a sales rep.  This reduces overhead significantly.  Due diligence could be done in the background, and their only experience with the sales team could be a simple invite into the service, and a call saying that the deal is on.  No hard-sales pitches, no wrangling over line items in a contract.  Just, here’s the standard deal format, offer a product with this at this rate with these terms or agree to a higher rate for certain value-added services(such as detailed above).

There is no doubt that Groupon presents an interesting scenario.  And though, as one player in the industry said recently, Groupon is the “whale” right now, it really is not the industry.  Groupon’s focus on hard revenue growth could very well hurt them in the long run.  But this just means that there is so much room in this market for a newcomer(or smaller player) to make a big play with some of the above improvements.  Really, I shouldn’t even be posting this, as this set of ideas alone could be a pitch to an investor.  Or maybe I’m too high on my horse right now.  Rocky is just one of many bright and talented individuals working in and around this space, and I would love for one or many of them to comment and share this article to get a conversation going about the future of daily deals and LBT.

PS:  I am not in the daily deals or LBT industry.  I actually am working at the intersection of mobile, gaming, social, and e-commerce.  This is just a really interesting though experiment.