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VOL. 127 | NO. 69 | Monday, April 9, 2012

(Daily) Deal or No Deal?

Local businesses fall on both sides of the social coupon craze

By Andy Meek

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The anatomy of a deal has become a fascinating study these days among businesspeople, grappling as many of them do with coupons, daily deals, special offers – whatever magic ingredient will bring customers through the door.

And ensure they come back.

Mike Wamble, owner of DUO Auto Inc., said his business was very happy with the results of using a Groupon for a $19 oil change, tire rotation and balance. Wamble said Groupon has scheduler software that helps make sure he doesn't have 100 customers showing up at his business on the same day. But not all business owners feel the same way. (Photo: Lance Murphey)

In a sense, those are perfectly understandable considerations. The economy is still about as sure-footed as a late-night reveler who has had a few too many, and now is especially not the time to let potential sales walk away unsatisfied.

For some business owners, the current “daily deal” phenomenon is a way to get there. And you don’t have to look hard to find Memphis businesses offering variations on a deal of the day, whether by using services like Groupon or LivingSocial, or a special product offer – say, by promoting a “shoe of the week” sale for a shoe store.

Groupon, a deal-of-the-day site that hooks consumers up with discounts at retailers both in their neighborhood and around the country, has been connecting Memphians with deals since February 2010. The company, which has gone public at a multibillion-dollar valuation, has been involved in customer deals with everything from the Memphis Grizzlies to the Pink Palace Museum, Scale’s Café and the University of Memphis Tigers football and basketball teams.

The value proposition for services like Groupon and others like LivingSocial – and lest it be overlooked, Internet giant Amazon.com also wants to grow its own daily deals service, AmazonLocal – was articulated last year in a Christian Science Monitor article. It boils down to this, according to that piece:

Retailers use those deals to win customers they wouldn’t have had otherwise.

Mike Wamble, owner and general manager of DUO Auto Inc., said he was initially wary of Groupon because he’d heard of businesses getting overwhelmed by demand for the deal that they weren’t prepared for – and which turned the situation into a financially unprofitable one very fast.

“I own a service business that is just 8 months old,” Wamble said. “It was not in a great retail location and finding new customers was a challenge, so after some careful research, I decided that the value of promoting my business to hundreds of new customers was worth the risk.

“As luck would have it, I relocated the business the week the Groupon was scheduled to run. The folks at Groupon were great to work with; they modified the ad for the new location and allowed us to offer more as we were able to service more customers in the new location.”

Wamble said in two weeks he saw more customers than he’d normally get in two months.

“New customers found out about our business and our business model, many customers booked additional business and many have indicated that they will be repeat customers,” he said. “I am very pleased with the Groupon experience and plan to run another feature soon.”

It’s not that simple to some Memphis businesses, though. Take Peria Gober, the owner of the shoes and accessories store Peria in Midtown’s Belvedere Collection.

She did a LivingSocial deal for a period of time – and while she says now her experience with the company was very positive, her opinion about the experience itself is so mixed she may not do it again.

It comes down to this: The majority of people who took advantage of her deal, she said, were existing customers.

Eryka Smith, owner of clothing boutique Crazy Beautiful at 3536 Walker Ave., said she is against using an online coupon like Groupon to promote the store. Smith said Crazy Beautiful promotes itself through social media and in-store promotions, which better build up customer loyalty and awareness. (Photo: Lance Murphey)

It’s an example of why, in one sense, the daily deal phenomenon essentially works out to be a math problem for entrepreneurs. The way such deals work best for business owners – and this may not even always be possible – is to limit the number of existing customers who can take advantage of it while maximizing the number of new customers who come in the door because of it.

Also, it’s frequently hoped for among daily deal participants – similar to what sometimes happens with coupon-wielding customers – that they’ll come in, spend the money on their deal, but see a sweater that catches their eye and that they get tempted into buying. And presto, the deal required giving away something at a discount, but the consumers end up spending more than they planned.

At the same time, even new visitors to a business thanks to a daily deal can sometimes pose a planning problem for the owner.

“Most of the new customers I saw only wanted to spend the exact amount of the deal,” Gober said.

She said she was “kind of skittish” at first about trying a LivingSocial deal, but there were a few positives that outweighed that uncertainty. She did it in the spring, which she said in the shoe business is usually a good time for her to try new things. Also, it involved no up-front cost and she thought the deal would give her a quick cash injection.

Ultimately, though, the experiment was not unlike one she tried on her own, a “shoe of the week”-type sale.

“I thought something like that might help move along something that wasn’t selling,” Gober said.

After a while, though, a pattern started to emerge – increasingly, the shoe of the week deal was not getting tapped as much as possible, because customers were waiting for a particular shoe they wanted to be the shoe of the week.

Similarly, other business owners mentioned a slightly related problem to that – the “friend discount.” As in, friends of the owner expecting – hoping? – that their relationship will afford them … wait for it … a deal.

To some business owners, meanwhile, a daily deal is no deal at all. Kat Gordon, the owner of Muddy’s Bake Shop in East Memphis, said she’s been approached frequently about participating in daily deal promotions.

She not only turns those down – she’s also shied away from advertising and from coupons for her cupcake and sweet treat shop, saying she’s always felt those kinds of things dilute the value of her product.

Eryka Smith, the owner of women’s fashion store Crazy Beautiful near the University of Memphis, has similar views. She said she’s spent money on advertising for her store that’s delivered a minimal return, and like Gordon, she’s also “bugged all the time” to do daily deals.

“It’s simple math, and the math doesn’t look like it works in my favor,” Smith said. “I also don’t think you should always have deals.”

 – Eryka Smith
Owner, Crazy Beautiful

“It’s simple math, and the math doesn’t look like it works in my favor,” Smith said. “I also don’t think you should always have deals.”

Somewhere, Ron Johnson is nodding in agreement. He’s the retail industry veteran who headed up the retail strategy for Apple Inc. and who now is trying to enliven the retail experience at JC Penney. One of the biggest headwinds frequently cited in the national business press that Johnson is facing: recalibrating the expectations of customers who are used to Penney’s frequent discounts.

Crazy Beautiful, it should be noted, has a unique “coupon” strategy. They’re not really coupons. They’re more like rewards cards, and they’re often given to customers who’ve been spotted out and about wearing threads from Crazy Beautiful.

Sometimes, those shoppers will get the card in the mail.

So what’s the bottom line? Daily deal promotions aren’t for every business owner. Such deals also are an art, not a science.

“I could go into a long dissertation about the pros and cons of Groupon-type sites, but I'll just give you my opinion,” said local small-business coach Robert Staub. “Groupon and similar sites benefit just a small percentage of the average small-business owner whose product or service typically has a higher margin.

“That being said, these types of sites and companies are just a marketing tool and should be thought of that way. Small-business owners need to do the math just like with any other promotion. If the (return on investment) works, then go for it, and make sure and track the results from this or any other marketing strategy. They need to understand that if it's worth doing, it's worth tracking.”

PROPERTY SALES 51 334 9,936
MORTGAGES 41 330 10,946
BUILDING PERMITS 348 1,216 22,173
BANKRUPTCIES 43 348 6,311