Merchants and Retailers can do better

Yes, I am a fan of the Daily Deal space. Despite the knocks the industry has been receiving over the past few months, I also believe that it is a truly viable marketing tool for certain retailers to use in order to acquire customers and market their business.So when I see a retailer using advertising in an ineffective way and knowing that they spent tens of thousands of dollars at a minimum, well, it gets me frustrated. Especially when I know how well these retailers could have done with their campaign had they used a Daily Deal scenario.

 

 

Here are two examples that caught my eye this week as I was driving in my car or picking up my mail:

 

Example #1: The Big Brand

This week McDonald’s advertised a promotion on the radio for 50% off their breakfast Bagels. A good promotion given McDonald’s distribution power (radio, social networks, deal bloggers, etc).

They spent tens of thousands of dollars in radio advertising in each market telling the audience about this 50% off promo.

  • Did it drive traffic to their locations? I am sure it did given how often they announced it.
  • Did it cost them tons of money? Yup.
  • Did they make money on this campaign? NO CHANCE! Even if customers bought extra food. It’s about customer acquisition.

Now, if McDonald’s approached a Daily Deals service and ran the same campaign. What would have happened?

  • There would be no upfront marketing costs for McDonald’s. Saving them a tremendous amount of radio ad money
  • Distribution may be larger across radio, but conversions are better through email marketing
  • Let’s say they worked with Wagjag or Teambuy across the country and Tuango for Quebec/Montreal. That’s reaching over 4 million people. I am convinced that tens of thousands of people would have purchased a voucher to show up. Probably the same or better than the Radio campaign.
  • What would this have cost McDonald’s? Well, first they were already discounting their Bagel by 50% so there is no extra cost there. For the split with the Deal site, given that this is McDonald’s there is no such things as a 50/50 split nonsense. They probably would have negotiated an 85/15 split…or 90/10, and the Deal sites would have gladly taken that offer given the exposure to McDonald’s.
  • Operational: McDonald’s would have needed to figure out how to process vouchers in store. Not that complicated since they have done coupons in the past.
  • This campaign would have introduced a McDonald’s item to a whole set of consumers who might not otherwise have gone to McDonald’s were it not for the great offer.

What Big Brands have failed to see, in my opinion, is that Daily Deal services are simply another distribution method for their marketing efforts, albeit a very powerful one. If a brand is already offering “deals” or”promos” then the issue of “discounting” is, well, not an issue at all. Instead of spending hundreds of thousands of dollars on Radio advertising, TV or billboard, why not allocate some of that marketing spend to customer acquisition through the distribution of an offer through Deal sites? Big Brands may very well be surprised at the outcome.

BTW….do not be surprised to hear that brand agencies are keeping their big brand clients away from Daily Deal services. The relationships they have with traditional media and given the budgets they “control” for their brand clients cause many to steer clear of Daily Deal campaigns because they are concerned with the budgets they “control”, what exactly happens to agency commissions, what happens to agency fees for creative, etc. All valid points and yes these concerns exist.

 

Example #2: The Local Direct Mail piece

I live in Montreal. Last week I received a direct mail piece pertaining to a very popular local Italian Restaurant. Here are my observations:

  • The direct mail piece was a multi fold out, high gloss, very attractive and very expensive piece. I liked how it looked.
  • The piece described the Restaurant. There was NO CALL TO ACTION, no special offer, no invitation.
  • The piece was sent bulk mail.
  • This campaign probably cost this Italian Restaurant between $14-25,000.
  • Bulk rates are about 20 cents for this mailer. And the cost of printing would easily be around $2.50-$3 per piece.
  • Given the Restaurant’s area, they probably mailed it to 5000-8000 people, atleast. I am guessing they mailed it to more and if they only mailed it once, what a complete waste of money.

Now, did they achieve their goal? Well, if their goal was to send a beautiful and expensive piece, then yes. If their goal was to get between 800-1000 people to come in and eat based on that ad, (a very high conversion rate) then hell NO,  they did not achieve their goal. I drive by this restaurant often and 1000 people will not show up because of this ad.

Did they waste their money? I believe they did

Where is the media outrage? Where are all the bloggers destroying the credibility of direct mail campaigns? They’re online bashing daily deal sites for some reason.

Let’s compare if this restaurant ran a campaign on a Deal site.

  • Offer: $50 for two special chef’s menu offer, regular price $100
  • Percentage split: 70/30 (The restaurant keeps $35)
  • This restaurant is known for attracting large families, many tables, wine, etc, so the likelihood of spending over $50 for two is very good.
  • Restaurant costs? Advertising: ZERO, Food costs: 20% (mostly pasta)
  • Based on comparable restaurants, this one would have sold for 600 vouchers on a good deal site and more on top deal sites. Let’s use 600 vouchers.
  • Totals: 600 x $50 = $30,000 x 70% = $21,000 revenues for Restaurant
  • 25% spend on average over bill = $12.50 extra x 600 =  $7500 in extra revenue
  • Total one time revenue (not including repeat customers) = $28,500
  • Costs on food = 20% x $112.50 = $22.5 x 600 = $13,500
  • Profit from this campaign, not including repeat customers, $15,000

Now, in their direct mail scenario, they mailed to 5-8000 people and base don Direct Mail open rates, their piece got read by only 2%, so 100-160 people. Let’s actually give them 10%. so 500-800 people. Of these people, let’s assume 10% converted (a high number) and showed up at the restaurant. so 50-80 people showed up and paid on average $50 per person. That’s revenues of  $2500 – $4000.Let’s assume $3250.

Costs would be 20% on food, so about $650, and what else, hmmmm, oh yes, let’s not forget the advertising costs of between $14-$25,000 to send the direct mail piece in the first place.

Total profit or loss on this campaign: -11,400 to -22,400 (but the direct mail piece looked GREAT)

Daily Deal campaign?

  • They probably reached hundreds of thousands of people through the email distribution list of the daily deal site.
  • 600 vouchers ended up being bought. That’s 1200 people.
  • Profit of about $15000 and no advertising costs
  • Plus the restaurant can run follow up campaigns to those exact same customers who bought a voucher since the deal site has their emails or if the restaurant was smart, they would have captured their emails themselves.

Now don’t go telling me that the Restaurant “lost” revenue of $30,000 because of their 50% off offer. That is a false argument since the offer is the only reason that created 1200 people to buy (600 vouchers x dinner for 2). These people would not have been enticed to come in and buy that dinner immediately were it not for the special offer. As such, the whole campaign needs to be looked at for what it is; customer acquisition. In our example they would be profitable although other restaurants types may have much higher food costs.

In our scenario, the Daily Deal campaign creates a better outcome than the Direct Mail scenario. If I were the business owner of that restaurant, a $15000 profit versus a $15000 loss (that’s a $30000 difference in campaign outcome) is far more enticing. I would also yell at the person who decided to spend all that money on expensive Direct Mail campaign pieces.

Would I run daily deals every month? No. Would I run daily deals on my regular menu? Nope. Instead, restaurants should entice consumers with a special offer so they can experience the restaurant or experience something new about the restaurant…perhaps a special menu or a tasting menu or a chef’s table, etc. Offering special menus to deal consumers protects your regular business, does not alienate your existing customers and delivers special experiences to your new Daily Deal customers.

 

In closing,

Traditional media works, but only for certain merchants. There are certain businesses that are best suited for radio, print or TV advertising. For most others though, online marketing has been a truly valuable option. Traditional media no longer has the monopoly on the marketing dollars local merchants have. Internet/online spending (of which daily deals is a part) surpassed Newspaper advertising back in 2010 and will surpass all of print this year. Why? because business owners reach consumers far more effectively online, with less expensive and with greater conversions than most traditional media.

A business owner using a Daily Deal campaign, for instance, is to promote to an online audience, even if the business is completely offline. One of the powers of the Daily Deal campaign is its ability to drive customers to merchants that have zero internet presence at a very inexpensive campaign cost. That is a valuable benefit to the business owner.

Just as with traditional media, Daily Deal marketing is not suited for all merchants. However, they do indeed deserve a place in the marketing tool belt that business owners and brand marketers use to promote their business.

The operational aspects of the Daily Deal business model may need to mature and adjust, but it is undeniable how effective they have been at driving customer acquisition for business owners and brand marketers over the past few years.This fact cannot and should not be ignored by marketers.