Donnahill's List: business model

• Offering daily deals of up to 90% off things to do, see and eat in your city and couple that with crowdsourcing is just a recipe for success.

• Profiting From Daily Deal Sites

   

  I think we all know there comes a time when one can only stomach so many haircuts, massages, cheap dinners and entrances to attractions on these sites.

   

  As a business owner I know you probably don’t make time for all these wondrous things because you’re too busy trying to make a profit right?

   

  Well I have good news. There are finally daily deal sites designed specifically to help business owners by offering  50% to 90% discounts on useful Web applications, software, ebooks, gadgets, products and other resources entrepreneurs might need to grow their online business.
• Let me share my favourite ones with you.

  • strategy

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• On a high level, daily deals are an ecommerce business with relatively low overhead, no inventory, an enormous amount of consumer appeal and rock solid concepts. When the daily deal model is properly executed, it serves everyone: Businesses, consumers and, obviously, the daily deal sites themselves.
• On a high level, daily deals are an ecommerce business with relatively low overhead, no inventory, an enormous amount of consumer appeal and rock solid concepts. When the daily deal model is properly executed, it serves everyone: Businesses, consumers and, obviously, the daily deal sites themselves.

• 1. Consumers Will Always Want a Deal
   

   

  ---

   

  One of the most popular arguments against daily deals is that the economy is rebounding and the need (or interest) in local ecommerce deals will wane. However, the success and sustainability of daily deals is in no way contingent upon the economy.

   

  Buyers have wanted deals since the dawn of trade, and finding ways to save money is hardly a new concept. eMarketer predicts that by 2013, 96.8 million adults will redeem an online coupon.

   

  Will the demand for better coupons evolve? Will merchants demand a better return on their daily deal investment? Yes. But the fundamental desire to save money and find a good deal is not going anywhere. One might argue that the majority of online businesses are not at full capacity — meaning, there are virtually no businesses that couldn’t use more customers. That is fundamentally what daily deal sites offer any business: new customers.

• One of the most popular arguments against daily deals is that the economy is rebounding and the need (or interest) in local ecommerce deals will wane. However, the success and sustainability of daily deals is in no way contingent upon the economy.

   

  Buyers have wanted deals since the dawn of trade, and finding ways to save money is hardly a new concept. eMarketer predicts that by 2013, 96.8 million adults will redeem an online coupon.

• Let’s do some math comparing Groupon to Google in terms of customer acquisition:

   
   
  • To simply acquire a new email address, it usually costs me about $7 via a Google AdWords campaign.
   
  • If 10% of these users then buy something, that means we need to spend $77 to acquire a new paying customer.
   
  • If that business were to instead run a campaign on Groupon offering $50 gift cards for $25, they are spending $37.50 ($25 to customer, $12.5 to Groupon) to acquire the same customers you’re spending $77 for on Google.
   
   

  Not only did that customer just walk in the door, but the business is getting paid $12 for them to do so. Now does it make sense that Google offered $6 billion for Groupon’s business?
• 3. The Market Is Still Maturing

• Consumers feel good when they save money. As the daily deal industry matures, both merchants and daily deal sites will need to refine their strategy. Two things are certain: 1. Businesses will always have excess capacity/room for growth, and 2. Small/local businesses will always need marketing channels.

   

  Just a short year ago, a handful of players controlled 90% of the market in the daily deals space. While it’s estimated some 200 daily deal sites exist, a handful of players still control that same share of the space.
• When compared to other markets, daily deals are no more saturated than search engines, and certainly not as saturated as publishing, broadcast television, radio or direct mail. On one level, daily deal channels are essentially ad networks for small and local businesses, giving them the opportunity to directly drive revenue, grow exposure and expand a highly targeted customer base.

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• The answer is customer lifetime value. Customers purchasing with a coupon offer three additional value creation opportunities beyond the face value benefit of walking in the door:

   
   
  1. Purchase something else
   
  2. Love the experience so much that they return
   
  3. Love the experience so much that they refer friends
• And for me, this is where mobile and database marketing come into play. Mobile and database marketing are the perfect tools for marketing and re-marketing to tech savvy consumers who come to new businesses for the first time. By opting these people in to a communication database for future outreach, rather than relying on chance to drive return visits, the potential for coupon success seems like it would increase considerably.
• And call me crazy, but a Groupon clone that wants to distinguish itself from the rest of the pack could offer solutions for these other coupon revenue streams. For example, a daily deals business could, given its size compared to small businesses, use its own business model to purchase and resell digital marketing software at a discount.  How’s that for good press?

  • strategy

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• Lesson 1: This business is about user acquisition, not deals
• Can I consistently sign-up 4,000 users to my email list every week?
  Are there enough people in you intended market, with a crystal clear channel to reach them, to support 4,000 new emails every week? If you can’t see how this is possible, then it doesn’t make sense to start a daily deals business.  I will get into the logic behind this in a bit.
  
  Can I afford to acquire 4,000 users every week?
  If the channel you identified is paid, can you afford to acquire 4,000 users per week?
  The answer is going to change depending on the business you’re in and how much money is in the bank.   I will go into further detail on this as well.
• Why you need at least 4000 new users per week
• This is a metrics driven game.  You can run an entire daily deals business on a spreadsheet, and there is a calculable answer to almost every decision you will come across.  That makes setting up your metrics of paramount importance, second only to acquiring users.
• About 5% of the users that sign-up will buy something.
  ·      About 20% of those that buy, will buy an additional time.
  ·      A user will buy in the first week they sign up or not at all.  This will extend to a month and beyond as you optimize.
• How to Acquire users
  You probably fall into one of two camps.  If you already have a content site with users, you are evaluating whether you can convert those existing users into daily deals customers.  If you are starting from scratch you are evaluating how much it will cost to acquire users.
  
  I have existing traffic:
  If you fall into this camp you will need to decide what % of your users will convert into daily deals subscribers.  One option is to send them deals without asking for them to opt-in, but I would advise against this.  When people start receiving daily emails that they didn’t sign up for, they generally click the Spam button.  This will hurt your email deliverability in the long run.
  
  These are the three calculations that you need to consider:
  1.     What % of my current registered users will opt-in.   You already have a sizable list of users, and now you need to determine what percentage of them will opt in to your new deal product.  You only do this calculation once in the beginning.
   
  2.     What % of monthly NEW REGISTERED users will also opt-in to receive deals?  You know how many users register on a monthly basis.  What percentage of those users will opt in to receive deals?  For example, if you have a check-box to opt-in at the end of your registration process, what percentage of users will click it?
• 3.     What % of monthly NEW VISITORS will opt-in.  You may decide that capturing a visitor’s email for the purpose of sending them a deal is more important than sending them through the complete registration process.  For example, you can direct all incoming traffic through a landing page like Groupon’s with nothing more than a field to enter an email address. Or, you can pop-up a window as the user browses asking them to enter their email.
• If you decide to go ahead anyway, make sure that it’s in a niche where the population is extremely easy to reach in a consolidated way.  If the population is a tight knit community with a few powerful channels that reaches them, then you have a sustainable method of acquiring users.  If the population of that niche is a bit scattered, undefined, and there is no specific channel that you can reach them through, then you might want to reconsider this business.
• Local vs Global Market
  If you are going to get into the local daily deals business then you need 4000 users per month, per market.  You will also need 20 deals per month, per market.  As you can imagine this gets expensive.  Conversely, if you pick a market segment that can be served by deals anywhere in the country, you will make things a lot easier and cheaper for yourself.
  
• Generic vs Custom deals
  There has been a shift away from deal sites that offer generic deals like a spa package, to deal sites that offer highly curated custom experiences.  Curated deal sites offer packages like a hotel, event tickets, after party, and dinner that you couldn’t buy otherwise. The upside of this model is that you are offering a differentiated product and an experience that can be “on brand” with your site.  The downside is that these take a lot more time and effort to set up, and figuring out what sells is even t
• rickier.  Despite the downsides, there is very little room for generic “spa/restaurant” deals as LivingSocial and Groupon have gathered up the majority of that space.

  • strategy

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• Hmm, big audience and authority. You know who else has big audience and loads of authority in their city / vertical: local / vertical focused newspapers, magazines and online properties. Plus, the authority works both ways as small businesses know who the media companies are and are more likely to be comfortable offering a deal with them than a new daily deal site. In fact, I bet what keeps Groupon up at night isn’t LivingSocial or the now 120+ other daily deal sites, it’s the media companies with authority and an established audience.

• #1. Daily Deals are a reward to your audience, *not* an advertisement

   

  Creating a daily deal for your audience isn’t just a monetization strategy, it truly is an awesome service you’re doing on their behalf. It’s imperative that you position it this way to your audience and think of it this way internally.
• You need to explain that you know they are all consuming similar goods and services and that you went out and negotiated an awesome deal for those goods and services on their behalf.

• #2.  How to Introduce the Daily Deal to Your Audience

   

  You need to hit the following points when you introduce your daily deal product to your community (either via a dedicated email or a landing page):

• #3.  Use Your Authority

   

  When it comes to influencing consumers to buy a deal, there’s a bunch of psychological factors that you need to hit including social proof, scarcity, liking, and more.  One of the most important ones for you is authority.  In the daily deal market, there are two types of authority:
• #4.  Give Your Audience a Sense of Exclusivity
• Exclusivity is an important factor in motivating people to buy deals. Think how much better “private sale” sounds than “sale”. This can be as simple as position the deal for your community and allowing users to share that deal with their friends. This works best for media companies that have a base of subscribers that have opted into your product like print subscribers. You can also create a sense of exclusivity by providing a better discount on the deal for your print / best online users which leads me to point #5.

• #5.  Daily Deals Can Be More than Revenue

   

  In addition to having come up with a much better way to monetize your audience than lowly banner ads, you can use the daily deal as a way to accomplish more of your core goals:

   
   
  • Expand your audience.  You can offer an additional discount to your core users (print subscribers, online super users, etc.).  This will motivate people to become better users of your service.  You can also allow your core users to share the deal with up to 3 other people; a great way to market the product and reward your best users at the same time.
   
  • Convert your audience into retained users.  Most users never create an account on the media sites they visit — there’s no real reason to.  Except, now there is:  the daily deal.  Your visitors will be motivated to convert into users because you now provide a big reward:  you’ll help them save money.

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• The official definition of consumer behavior is :
   “The study of individuals, groups, or organizations and the processes they use  to select, secure, use, and dispose of products, services, experiences, or ideas  to satisfy needs and the impacts that these processes have on the consumer and  society."
   
   As an entrepreneur, marketer and/or business owner it is important to  continually adapt and improve your marketing campaigns and marketing strategies  to more effectively reach your consumers and clients.
   
   Understanding consumer behavior, and more importantly why people make purchases,  will give you a unique advantage to deliver your products and services (or other  people’s products and services) out into the marketplace correctly and most  effectively – yielding the best results and highest long term profits – and  giving you a huge advantage over your competitors!
   
   There are certain things that can be done that cause humans to pull out their  credit cards and make a purchase and we are going to be going over some  different factors and triggers that help enable this to occur in an accelerated  fashion.
• 1. Needs - At the basic level, before anyone considers ‘bettering’ themselves,  they look at a set of requirements that are essential to survival. Things like  food, water, heat and shelter. This is global, mass-market appeal, from the big  supermarkets down to your local corner shop. Sell
   into the ‘needs’ category and you are typically looking at higher volume / lower  margins.
• 2. Wants – Now we’re getting to the place where people have satisfied their  basic requirements for survival and can afford to step up the ladder to satisfy  some of their wants. Wants are ‘nice-to-have’ things – not essential but they  make life comfortable. Things like a car, a TV, a CD/DVD player, the Amazon  kindle – generally a decent standard of living. To capture THIS market of  satisfying people’s wants, you’re going to need to work a bit harder on two  fronts.
• 3. Desires - Desires spring straight from emotions. Profitable sales are  achieved on the back of emotions, if someone has a burning desire to satisfy,  then all logic usually flies out the window! Someone buying on emotion will pay  a high price – which can be excellent for you.
   If you are in the business of satisfying desires then you are probably selling  niche products or services, which don’t have such a large target market and  mass-market appeal. You are focused on people who are happy to pay a premium to  get what they want.
• The offer is only available for a limited time.
   ¨ There are only a limited number of items available.
   ¨ You like the idea of owning it.
   ¨ The Jones’ have one and you want to keep up with them.
• You can capitalize on using the college model. Create a Daily Deal site that  offers college students Daily Deals. Nearly every college student knows about  the dollar draft deals at the local pub. College age kids are also extremely  passionate about their schools. Simply finding one good deal that you can offer  to a particular college every day has monumental potential to grow and gain a  huge following rather quickly on campus. The Daily Deals Etc. software enables  you to start and take over one college or city, and then easily grow into other  colleges and cities.
   
   EXAMPLE Idaho State University “Over 12,000 College Students”
  
• Age or race: High school kids, college kids, etc. An end example would be for  you to create a Daily Deals site offering items that are directly related to  your chosen age or race. For example, high school kids like buying video games,  phones, name brand clothes, spring break stuff, paraphernalia, etc.
• Scarcity: Needs to be used in order to drive the action necessary to get a sale.  Think about a time in your life when there was only one item left on the rack  and it drove you to grab it even though you had no intention of doing so. The  use of limited inventory is absolutely one of the biggest and most crucial of  selling techniques both online and off.
• 
   Urgency: Now this is very similar in many ways to scarcity in the action that it  triggers and the emotions that are developed, but it is implemented in a  completely different way. Urgency puts a time constraint on your prospect to  make a decision and not to mull it over for too long, and fall in to a state of  ‘analysis paralysis.’
  
• Interactivity: Sales in the offline world are closed most often by one human  (sales rep) answering another human’s (prospect) questions about a product or  service. In the online world this is not as easy as we are not actually  connected and interaction is done virtually! This is why we have email, phone  numbers, chat and so forth. The key to using interactivity to provide an  efficient and effective selling platform is two-fold:
  
• a. Questions answered publicly are both more efficient and effective in  achieving a sale. Almost all of the time, if one person has a question, someone  else has the same question and answering these questions publicly will help to  keep from answering questions multiple times. This also further strengthens the  other two elements as it is proof that there are others out there competing to  get in on the product or service.
   
   b. Trust. Although online shopping is growing rapidly, much of the population  still have fears about buying online especially when they don’t know the person  or the brand. If someone can post a question or comment and receive interaction  from you they will instantly have MUCH more trust in you and your  products/services.

  • strategy

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• Unfortunately for Groupon, group buying websites are relatively easy and inexpensive to create and maintain. All you need are some willing merchants that want to gain new customers, a email newsletter to notify readers of new daily deals, and a website for the customer to purchase the group coupon vouchers. It then becomes a simple matter of growing the subscriber list for your email newsletter to generate more sales for your clients.
• With minimal barriers to entry, Groupon is dependent upon its brand and first-mover advantage to gain market share. Groupon is already present in most major U.S. cities and it just recently purchased MyCityDeals to become one of the largest group buying websites in Europe. Despite its staggering growth, there are numerous smaller markets throughout the U.S. and other countries that remain untapped which could easily be targeted by Groupon’s competitors

• On the surface, it would appear that the daily deals phenomenon is beginning to lose its luster. Not only have the visits to Groupon slowed this summer, Facebook dumped its deals program and Yelp cut its Deals sales staff by half.

   

  But none of these developments mean the daily deals business model has stopped evolving or that group buying sites aren't coming up with innovative ideas. Among other things, the most prominent daily-deal sites including Groupon, BuyWithMe and LivingSocial have been offering new products such as instant coupons and shopper incentives. In addition, companies that offer white-label daily deal technologies are also making great strides in improving these social group buying sites.
• I speak with manufacturers on a daily basis that are looking to attract national attention to their products but don't have the resources to bring it to market.  Usually it requires some type of fulfillment channel, which fortunately we can offer!  

  • strategy

• For group buying or daily deal sites, email marketing is an irreplaceable relationship channel between your business and audience. The unique business model for daily deal sites requires publishing and sharing new content every day. The rapid pace of this emerging channel requires marketers plan for a rapid pace run with efficiencies that enable a reasonable price.

   

  List building for group buying

   

  When it comes to starting email marketing for group buying sites, it’s all about the email list. Groupon’s biggest piece of intellectual property is their email lists. To enter the group buying game you have to rapidly grow an extensive email list. This means you must choose tools that provide a sense of urgency, make your message shareable and entice people to respond to your call to action.

  • college web media

• There have been 37 acquisitions in the online coupon industry so far this year, compared with five in the same period in 2010, according to the 451 Group, a research firm that tracks the market. This week Google purchased Dealmap, a discount aggregator; CrowdSavings.com acquired Lucky Monkey, a Kansas-based deal site; and LivingSocial bought TicketMonster, one of the largest players in South Korea.

  While the acquisitions remain small, at $10 million or less, the frenetic pace reflects the industry’s ambitions. Companies are looking to cash in on the highly fragmented but lucrative local advertising market. Restaurants, retailers and other small merchants are expected to spend $16.1 billion this year on Internet advertising, according to Borrell Associates.