Online Coupons: ‘A Force to be Reckoned With’

Carmen's Italian Ice & Cafe employee Nick Swearingen and manager Tom Pretl serve treats to campers and employees of the Barrie School camp in Silver Spring. Carmen’s recently started offering online coupons to draw customers. Tess Colwell/The Gazette

by Lindsey Robbins |

Carmen's Italian Ice & Cafe employee Nick Swearingen and manager Tom Pretl serve treats to campers and employees of the Barrie School camp in Silver Spring. Carmen’s recently started offering online coupons to draw customers. Tess Colwell/The Gazette

From salons and furniture stores to Italian ice vendors, more retailers are testing the social-marketing waters

Steve Appel knew he was taking a gamble when he turned to deep discounts to promote his design furniture store’s relocation in Baltimore.

But instead of offering his $200 gift certificates at $50 each through conventional advertising, Appel sought the growing influence of new media and the online social marketing site Groupon.

By the time the promotion was over, Appel had sold 769 discount packages for Nouveau Contemporary Goods, with 90 percent bought by new customers.

“The response was overwhelming,” he said. “It’s a force to be reckoned with.”

Throughout the state and nation, hordes of businesses are joining sites such as Groupon of Chicago and LivingSocial of Washington, D.C., offering a discount for the chance to reach a wider audience and build their customer base. Most of the focus in this region is on the sites’ Washington and Baltimore coverage areas.

“It’s a gamble,” Appel said. “You realize some [customers] might not come back.”

The advertisers that benefit most are those that can entice customers to buy non-discounted items or services once they are in the door, he said.

The number of consumers who subscribe to online coupon sites has risen to 88.2 million in 2011 from 77.4 million in 2009, according to industry research company eMarketer. That’s expected to reach 96.8 million in 2013.

“The economy currently lends itself to people looking for value, and that is what these sites seem to provide,” said Cindy Feldman, owner of Progression Salon Spa Services in Rockville.

The 27-year-old business has used LivingSocial three times and sees it as a way of rewarding loyal customers, as well as introducing new ones to the salon. She said Progression has retained a good percentage of Groupon guests, who have also brought in their children and friends.

Most coupon sites require businesses to offer half-off promotions and then split a portion of the coupon sales. Groupon takes about half, while LivingSocial’s cut is about 40 percent. Some sites also provide client lists and data for advertisers to track the online popularity of their deals.

Feldman said these additions — particularly the client lists, which can be converted into mailing lists — are the key to businesses making the most of the sites. Progression also uses Bloomspot of San Francisco, preferring to stick with the higher-end market.

“Maybe the customers won’t come in right away, but now you have them in your database and can continue to connect with them,” she said.

‘Lasting relationships’

“The pioneer of the collective buying space, Groupon creates a unique way for local merchants to reach new customers and drive business like never before,” Groupon spokeswoman Kelsey O’Neill said in an email to The Gazette. “As a result of Groupon, local merchants have the opportunity to create lasting relationships with an expansive new customer base for their business.”

LivingSocial did not respond to requests for comment.

Many merchants decide to advertise on these sites after trying them out as customers themselves.

Lucia Simmons, marketing director at Linganore Winecellars, did just that before running the Mount Airy winery’s own deals through Groupon.

Linganore is using the site to promote its Coon Beats n’ The Summer Heat Wine Festival this weekend and has sold 230 tickets. A separate deal for wine and cheese tastings has landed the 35-year-old company 675 more customers.

“You can always shop in your backyard for customers, so why not spread out?” Simmons asked. “I love social media. You have to love it — it’s everywhere.”

Linganore is involved in many facets of social media and seeks to treat all its promotional customers “as VIPs” to encourage their return, she said.

“It’s great exposure,” Simmons said.

Some of the businesses seeing the greatest returns through these sites are those in the food industry, said Patrick Donoho, president of the Maryland Retailers Association.

Dorian Brown of Neopol Savory Smokey restaurant in Baltimore attested to the value of procuring new customers through its $10 dinner deal, but he also cautioned that restaurants are at the greatest risk for selling beyond their means.

While Neopol placed a customer cap on its deal, Brown said it is easy for businesses to forget about the precaution and get inundated with coupon-bearing customers.

Another risk is customers who try to redeem coupons after the offer expires, Brown said, saying they can be “pretty aggressive.”

“I did it twice. Will I do it again? Probably, but not anytime soon,” he said. “I’ll probably wait for a slow period.”

‘It’s not for everyone’

Jason Mandler, owner of Carmen’s Italian Ice & Café in Rockville, had his own reservations about using the sites before running a promotion with LivingSocial in August, but said the response has been solid.

“It’s not for everyone. You have to be prepared for the influx,” he said, adding that his business supports a staff of 35 during the summer and can handle the numbers. “The phone’s been ringing off the hook with people asking how to get here.”

Mandler joked that his new addiction is watching the site to see how many coupons are being sold. His goal is a mix of current and new customers, whom he hopes will tell others.

Even grocers such as Santoni’s in Baltimore have tried out the sites, although owner Rob Santoni said they haven’t done much for business.

Santoni originally went with Groupon in hopes of having an exclusive presence in the market, but he said grocers do not have the sales margins needed to support Groupon’s type of deals.

“If you sold 400 half-off tickets, you’d need everyone to come in and buy $85 in groceries,” he said.

Some businesses try to cash in through their novelty in the social marketing arena.

Heather Hinkle fought for LivingSocial’s permission to include her two-year-old Grand Paws pet salon in Annapolis. By noon of the day’s posting, Hinkle had 100 sales and eventually ended the promotion with 238.

“They have a huge email base. I’m looking to get my name out in the most effective way,” she said. “Usually, people look at the price of what we do instead of what we do and don’t even try us.”

Grand Paws also advertised on a local marketing site before it shut down a month later.

Copycat sites tend to generate smaller results because they lack the branding and technology of their major competitors, said Sinan Kanatsiz, chairman of the Internet Marketing Association.

He added that while such sites as Groupon are impressive from a branding standpoint, they have yet to yield the same business benefits as more conventional media.

“Social media has not proven itself as that. … It’s still being worked out,” Kanatsiz said. “Psychologically, something is not motivating customers to return.”

Nevertheless, conventional media advertising revenues continue to dwindle, falling to $28.5 billion for newspapers in 2010 from $49.4 billion in 2005, according to eMarketer.

‘A certain amount of cachet’

The online sites are a potent new competitor to conventional media because of their novelty and ability to provide better customer data, said Rick Edmonds, media business analyst for the Poynter Institute, a Florida education nonprofit that tracks the media and owns the St. Petersburg Times.

Some newspaper chains such as McClatchy have responded by partnering with the sites to run an extra coupon in their pages. Others have purchased similar systems and designed their own online coupon offerings, he said.

The Gazette offers its own Gazette Daily Deal, which has met company expectations, said Shane Butcher, The Gazette’s director of technology/Internet. The Gazette tries to counter competition with greater accessibility to customers using the site for their business, he said.

“I don’t have a strong opinion about which strategy makes more sense,” Edmonds said, referring to newspapers either partnering with the more popular sites or creating their own online offerings. “Groupon has a certain amount of cachet.”

Kanatsiz said social marketing advertisers also have to watch out for potential mixed messaging of the sites, which might promote businesses to the wrong audience and alienate potential customers.

“The average Groupon customer is not educated on what this is all about,” Appel said. “You have to make sure to craft the deal to be beneficial to your business or it could put you out of it.”

While people should not expect to see online coupon sites profilerate a great deal, they will likely see increased usage, Kanatsiz said.

“Anyone who thinks the Internet is not going to take business away is stubborn,” he said. “You have to be proactive rather than reactive.”

What’s driving the interest?

In 2011, nearly half of all online consumers will redeem digital coupons online or in a store. Several factors account for the increased interest:

*During the Great Recession, online coupons became a key strategy for shoppers looking to stretch their dollars.

*Consumers are spending more time researching purchases online, and that has spurred the natural migration from print to digital coupons.

*Consumers are increasingly proficient at finding coupons from a variety of sources, including manufacturer sites, dedicated coupon sites and social networks.

*The popularity of daily deal sites such as Groupon and LivingSocial has created a new form of online deal-hunting.

Source: eMarketer