Industries Small Business

A cupcake of a deal

Small businesses turn to Groupon and LivingSocial to get more bang for their advertising bucks

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Print this page by Richard Foster

After 18 months, many new businesses still struggle to get customers in the door. Not at Richmond’s Carytown Cupcakes bakery, where owner Dawn Schick says some days it’s all she can do to keep up with demand.

Schick has built a loyal customer base through gourmet cupcakes in a range of creative flavors, from Italian desserts and wines to ice cream and candy bars. But Schick also is packing in new patrons through two not-so-secret weapons that small businesses such as hers are increasingly using: online marketing services Groupon and LivingSocial.

Schick has used both services successfully. In March she ran a Groupon promotion offering a half-dozen cupcakes for half off, and 1,000 customers purchased the deal. “That’s a thousand people potentially who will be coming in the shop over the next six months who have never tried us, and hopefully we’ll be keeping them as customers,” Schick says.

Small businesses offer goods and services at massive discounts (at least half off) through Groupon and LivingSocial, which take a cut of the sales in exchange for promoting the deals to their massive localized databases of subscribers. (Groupon’s regular merchant price is a 50 percent split plus 2.5 percent charge on customers’ credit card purchases. News reports say LivingSocial charges 40 percent and does not charge credit card transaction fees. Both sites, however, may vary merchant fees depending on the type of deals offered.)

Customers receive the daily promotions via free email newsletters and/or mobile applications.

Groupon and LivingSocial give local small businesses a reach rivaling that of the big guys, says Carey Friedman, owner of Grandpa Eddie’s BBQ in Henrico County. More than 100,000 people received a recent Groupon deal for Grandpa Eddie’s, which opened in 2005. “I can’t buy a mailing list like that,” Friedman says. “As a small business, that lets me compete with the national chains as far as being able to advertise.”

The sheer volume of business that Groupon and LivingSocial draws can be a challenge in itself, particularly during the beginning and ending days of an offer. In the first week of her Groupon promotion, Schick recalls filling vouchers for 15 dozen cupcakes in one day. On the final day of Friedman’s most recent promotion, he redeemed 50 dinner vouchers.

“It’s like the Fourth of July on your phone. Your phone blows up. It’s nonstop,” says Steven Zawisa, owner of Ocean Eagle Kayak, which offers guided ocean kayaking and dolphin sightseeing tours in Virginia Beach. In the first day of his recent LivingSocial deal, which offered $75 guided tours for $25, he says, “I was on the phone probably 16 hours just answering questions.”

Even though he turned just a small profit on the deal, Friedman says, “We also were able to turn a large portion of those first-time guests into regulars, so the money spent keeps on paying us back. I look at it as an advertising venue, not a profit center. I think if a business considered running a Groupon to make money, they would be looking at the deal the wrong way.”

That business is also likely to be repeat business: Nearly 90 percent of LivingSocial restaurant deal customers plan to return, and about 50 percent of LivingSocial restaurant deal customers are first-time patrons, according to LivingSocial follow-up surveys. (Customers also spend an average of $33.65 above the voucher amount when dining.)

In addition to getting new customers in the door, Groupon and LivingSocial also provide valuable marketing data for small businesses.
“Groupon has awesome analytics,” says Aimee Joyaux, vice president of arts education at the Visual Arts Center of Richmond, which has run two Groupon promotions offering discounted art classes.

Groupon provides customers with a back-end website full of detailed information on all the people taking advantage of their deals — everything from geographic data, like customer clusters by Zip Codes to demographic data such as gender and age breakdowns.
“In terms of target marketing and the audience we’re trying to reach, this really informs us,” Joyaux says.

Groupon and LivingSocial also provide merchants with live web stats keeping track of how many customers have redeemed an offer and how many remain, making it easy to keep track of one’s return on investment. 

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