Groupons, Coupons and Deals in DC

Groupon and Living Social and What's the Deal are all the rage on the frontier of online advertising, representing the most successful of the quickly-growing pack of "social group coupon" merchants. They're a very popular mashup of a number of well-known online marketing techniques, implemented in a way that clearly separates them from traditional banner ads, coupon clubs or classified advertising - they're fun, feel exclusive, count on social buzz and absolutely real savings to succeed. No doubt these kinds of coupons are valuable to the users (50% off a nice dinner out? - pretty good deal); but are they beneficial to the merchants? While the ROI jury has initially spoken regarding the value of the business plan (see Google's recent offer for Groupon, and the global waves of "copycat" enterprises popping up quicker than the last wave of eBay lookalikes) - the Jury's still out with respect to reliable ROI for the merchants actually offering these "deals".

A "social group coupon" is basically a highly-discounted deal that's available typically for limited amounts and time, is highly focused and advertised online to a target demographic, and is available only after a certain threshold of people commit to buy. The value to consumers is inescapable - by simply joining a group of like-minded coupon-clippers (providing your email, and some optional demographic info), and perhaps "spreading the word" a bit while chit-chatting in Facebook or Twitter, your virtual "flash virtual coupon mob" wins the deal - ostensibly a deal that's real, since the groupthink deems it so. Who else wins?

Taking Groupon as an example, the Dealmakers and their investors win - they'll get over 50% of the amount paid by consumers for the deal, along with continued "word of mouth" free advertising among a growing, "opt-in" fan base and email list (very valuable). These deals show up not only in emails and the Groupon site, but also on affiliate sites and networks - other popular websites whose owners get paid a little to show the deals. To orchestrate the affiliate activity, "affiliate merchants" are involved (like Commission Junction), who take a little from the Dealmaker for this service - so they win, too. The affiliates win - deals that show up on websites, in twitter feeds and other advertising channels (promoted by the affiliates themselves) can be attractive enough and promoted smartly (these 2 factors aren't given) as to draw new traffic and cross-selling opportunities to the affiliates. The payment gateways win - obviously most payments occur online through Visa, PayPal, Google Checkout, whatever - all of whom take another little cut (as do some of the Dealmakers).

Here's an example of a local affiliate channel in DC/Northern Virginia - Northern Virginia Business Deals.

What about the Merchant, offering the deal? Death of a deal by a thousand cuts, or is it really helpful?

The deals are carefully constructed business transactions, pure and simple, implemented in a way that above all else maximizes ROI for the Dealmaker, and takes advantage of any market advantages that come available - like "clout" and unique reach among demographics, first-to-market positioning and exclusivity, efficiencies in affiliate management, etc. It's really pure business, no play - regardless of the "community spin" that's promoted. The bigger players offer less to individual merchants, presumably because their services are worth so much more - while the newer entrants may offer more, at lower cost - since they're willing to do more to build their base of attractive merchants, offers and community traffic.

The prize is many hundreds of immediate purchases of the coupon, with volume revenue overcoming the profit discount, hopefully at a price-point for fulfillment that is both expected and can be absorbed without "crashing the system", so to speak. In other words, lots of new repeat customers for perhaps a little profit or maybe just more guarantee of future profit - and you've got enough stock to cover the one-time deal.

Let's consider the benefits to merchants of some of the primay social group coupon dealmakers in the Washington DC/Northern Virginia area (note that these are vendor-supplied statistics at this time, and generalizations based on a variety of merchant-driven interactions; actual negotiations and final contracts will be very unique to the deal - KME Internet Marketing in Northern Virginia can help sort these out).

Groupon's deals with local merchants go out through an email list of over 650,000 subscribers and its affiliate network, the deal must be at least 50% of original retail, redemption rates exceed 80% and the revenue is split 50-50. The heavyweight in this area, they drive a strong non-compete agreement, waits can be long to get "in-cycle", and their approval of the actual deal may be inflexible, as it's driven by their own very detailed analytics for success.

LivingSocial.com has about 1/6th the number of subscribers, a slightly higher redemption rate, and the negotiation tends to be more flexible - quicker merchant payment, less exclusivity required without "non-compete" agreement, more likely to try new deals with new demographics (while all of these sites typically started with the young, urban tech-savvy set - they all seem to be quickly adopted by the soccer-moms and suburbanites - the same kind of trending for most new social media tools).

SoWhatstheDeal.com (update- looks like it's now "CapitolDeal") (by the Washingtonian magazine folks) is very local, has about 1/3 of Living Social's subscribers, but seems extremely flexible in competing for business - they are, however, still very focused on the very young, urban set (20-30), with all kinds of additional social interaction to support the marketing, including raffles and weekly events.

There are also many other new variations of "Groupon clones" out there, like Homerun, Deals for Deeds, Specialicious (from the Northern Virginia Magazine folks), Eversave and Socially Ideal. Heck, you can start your own group buying initiative, for less than a thousand dollars (to buy clone scripting software, optimize it, and get started on the marketing).

There also exist a flurry of "pseudo-clones", that aren't quite social group coupons, but social-media marketed traditional coupons - for example "CheapLocalDeals" as displayed on local media like the Loudoun Times, which is simply a traditional affiliate pay-per-click (PPC) banner ad channel (like Google's Adsense), for which the Merchant pays a fee per click (i.e. like Google's Adwords), and the affiliate network (i.e. CheapLocalDeals and the Times) each get their cut. "Socializing" the deal includes the efforts by the affiliate network to boost word-of-mouth advertising and visibility through SEO, email subscription-list building, and other online marketing tactics - all to ensure a more qualified and durable set of eyeballs who will likely click, purchase, enjoy and tell their friends about it.

Local merchants can certainly succeed, and succeed wildly by leveraging this new advertising medium - but also fail badly in overall ROI if it isn't considered an integrated portion of the overall online marketing effort. Within a planned online marketing budget, how should use of social group coupons be included? Consider the major online marketing expenses to be balanced:

• social group coupons
• paid banner ads and links
• paid article and contextual ad placements, on websites, games, mobile, etc.
• paid press releases (i.e. ads in news clothing)
• paid classified ads and community-centric notices
• paid online engagement marketing, i.e. onsite and offsite social media ads & presence (like in Facebook, LinkedIn, Twitter)
• paid search engine optimization (SEO)
• paid search engine marketing (SEM), i.e. pay-per-click (PPC) via search engines
• paid multimedia ad placement (i.e. in Videos)
• online marketing web design and content for your own site, mobile apps, landing pages and offsite interactive profiles and presence
• ...and so on

It's enough to make the owner of the marketing budget's head spin - especially for a small merchant, without the effective resources to track integrated performance across all these advertising channels, and balance investment against outcome. Sometimes jumping on the hype-cycle is simply a one-time investment necessary to test it out or join the game...but the hype-cycle is probably past for social group coupons, and a more methodical approach is warranted to drive the right kind of value. This applies not only to the Merchant advertisers, but also to media publishers (i.e. website owners, like Newspapers) who must balance their own coupon/classifieds community-building efforts with syndication of others that might add value, like Groupon and Living Social.

If you're a Merchant seeking help to sort out these online advertising options, including the new wave of social group coupons, drop a line here...