March 19, 2012

A Groupon Alternative Aims to Offer Small Businesses a Better Deal

Constant Contact has been one of the big success stories when it comes to online companies that specialize in serving small businesses. Some half a million of them count on the company’s Web-based help in building, managing and creating marketing campaigns around customer e-mail lists.

You're the Boss

Started 14 years ago, the company, which is based in Waltham, Mass., went public in 2007 and has expanded into other areas, including managing social-network marketing campaigns. In February, it introduced yet another service: coupon-based deal marketing. That brings Constant Contact into a crowded field of competition along with Groupon and LivingSocial. In a recent interview, condensed below, Gail F. Goodman, Constant Contact’s chief executive, explained why she thinks small businesses will prefer her company’s service.

Q. A lot of consumers are already burned out on deals. Are you too late?

A. We think of SaveLocal as building on the consumer experience that the daily deal companies have demonstrated. Their model has been about large-scale consumer lists, but we saw a while ago that it wasn’t perfectly serving our customer base of small businesses, 70 percent of which have fewer than 10 employees. We started talking to our customers about what did and didn’t work for them with Groupon and LivingSocial. We knew there had to be a better way, but it took us until the beginning of last summer to come up with what we thought would be a twist on the model that would make coupons work.

Then we spent six months developing and testing it to make sure we had it right. We think the timing is actually pretty good, because the merchant community has had a chance to become aware of the issues and problems with the daily deal market, and they’ve become very open-minded to the idea of structuring deals in a different way.

Q. What’s different about your model?

A. If Groupon provides quantity, we want to provide quality. We think the way to find your next great customer is through your existing customers, rather than through a big list of consumers who don’t know much about you. SaveLocal is about sending coupons to your current customer base, and providing them with an incentive to share the coupons with their social network in order to bring in new customers. We also turn the economics of the deal on its head, by letting the merchant control the amount of the discount so they’re not losing money on it.

Q. What’s the incentive for a small business’s customers to share a deal with their social network?

A. The small business chooses the incentive. The reward might be an extra $5 discount on the coupon, or 20 percent off on a second visit, or a free item, or whatever the business wants to offer. But the biggest difference with SaveLocal is that the customer gets the reward just for sharing, whether or not the friends buy anything.

Q. By offering smaller discounts, your merchants may protect per-customer profits, but won’t the deals be less compelling to consumers?

A. We’re seeing success with discounts of less than half off. We haven’t tested it enough to know exactly at what point you get diminishing returns from decreasing the discount, but we’ve seen a customer be wildly successful with a 33 percent discount. A smaller discount might not attract as many customers, but it’s the rabid deal-seekers who are going to find it less appealing, and that’s not necessarily who small businesses want to attract.

We’re changing the whole economics of the deal. The daily deal companies not only make merchants offer about half off, they keep about half of what the merchant takes in on the deal. We only charge $1 to $3 for each coupon. And we help our customers think through the best way to structure the deal. Restaurants can offer a coupon for less than the average ticket and make more when the customer buys up, so that if customers spend $40 on a dinner, the merchant can offer a $20 coupon for $10, and keep all of the extra $20 that the customer spends.

Q. If your customers e-mail their offerings only to existing customers, are they giving up the opportunity to attract lots of new customers?

A. About a fifth of the people responding to our deals are new customers for the merchant. But more important, because they’re getting the offer through an existing customer, they’re much more likely to be local than the people who respond to daily deals, and they’re much more likely to turn into loyal customers. They’re learning about the deal from an existing customer who’s endorsing the merchant. And we give merchants the means for following up, by helping the merchant get the new customer’s e-mail address and opt-in permission during the purchase process. Groupon and LivingSocial don’t share contact information with merchants. 

My Comments:  It seems like this new deal company might be going in a good direction. Many small businesses can't pair with Groupon because Groupon takes too much money that these businesses can not afford to give up. Save Local offers the same benefits as Groupon but on a smaller scale and with demands targeted more towards small local businesses. Save Local's model is based on networking which is typically a small businesses main form of advertisement anyway. Customers are rewarded by spreading the discount by word of mouth this is basically free advertisement for these companies.