Internet advertising is a tricky business. Affiliate marketing, banner ads and search engine pay-per-click strategies run amuck. Most often, the goal is to drive website traffic, but what happens there? Is your company’s website impressive enough to generate sales opportunities? Are your landing pages filled with effective call-to-action content?
With all the fuzzy numbers and “throw it against the wall” game plans, advertisers have been caught in a sticky situation. Since people are spending more and more time on the Internet, surely we must seek to influence consumers in this space. However, retailers have pulled back as of late, reevaluating online advertising strategies and looking for better solutions − and better solutions are popping up.
Coupons! Not your old-fashioned, “clip’em, pile’em and forget’em coupons.” New high-value coupons with an embedded call-to-action offer the greatest incentives. Restaurant.com is a great example. Restaurants sign up to allow Restaurants.com to offer deeply-discounted coupons for purchase, such as $25 food/drink gift certificates for $10. Everyone wins. Restaurant.com keeps the $10 paid by the consumer, the consumer gets $15 worth of free food and the restaurant gets new customers without having to invest in finding them.
You may be thinking, “Not fair for the restaurant.” The website is trading off their business, presenting the consumer a great deal but leaving the restaurant $25 in the hole to begin the transaction. There’s a little more to the story, as the $25 gift certificate comes with contingencies. The consumer can only use one per transaction and must agree to purchase a minimum of $35 plus tax and include 18 percent gratuity. So, despite appearances, the restaurant is NOT losing money on the transaction, and has a chance to actually MAKE money on the transaction: the consumer may decide to spend $85 on the meal. Additionally, the restaurant has received publicity and redemption without having to pay upfront and risk paying for low or no return on investment. The restaurant’s investment is always tied to a new consumer transaction.
Then there’s Groupon, promoting deeply-discounted local offers, one per day, with the offer only coming to fruition if enough people purchase. For example, a $75 SCUBA diving lesson is offered for $35. This deal is available for 24 hours only and happens only if 50 people or more pay for it. As the 24 hour period unfolds, people sign up for the offer by submitting their credit card information, with the understanding that they will be charged only if the deal “tips.” Those people who are eager to get the deal watch the website periodically to see how many have been purchased and how much time is left for the deal to happen. Frequently, those who are eager to obtain the special price will use their influence to recruit others, sometimes by posting it on social media sites, like Facebook and Twitter.
By working with Groupon, the business is making an investment by deeply discounting their goods or services. The money raised in the one-day sale is split with Groupon, so the $75 SCUBA lesson that’s sold for $35 will net the business $17.50 (less 2.5% credit card processing fee). In this instance, the SCUBA company is selling its service at 23% of their regular price, but what is the value of the publicity and new consumer relationships established?
Perhaps what’s so compelling about these newly structured “coupon” businesses is that they provide an avenue for businesses to offer deep discounts without losing face. Current economic conditions dictate that there are simply fewer consumer dollars on the table and businesses must compete vigorously for those dollars. However, directly offering aggressive discounts can equate to devaluing the goods or services offered. As a result, third parties (such as Groupon and Restaurant.com) are in the right place at the right time.
This new Internet-based model works for everyone! Consumers feel better about spending if they perceive outstanding value – more bang for their buck. The third party providers can be profitable because there is a purchase price to these offers and they keep a significant share. The business owner is only “paying” by discounting the consumer transactions. By not paying upfront, the business owner gets what they so desperately need: new consumer transactions and publicity without the risk of coming up empty. Everyone wins!
