The Billion $ Online Biz of 2011


Are willing to be known as a discounter?

Or would you rather be known for your value?

The past couple years we have the growth of Groupon and other daily deal web sites which have had mixed results.

According to this survey from Mediapost, this type of promotion is popular with consumers.

But I worry about the long term sustainability of these promotions for an individual business.

See, the more we train consumers to only buy when something is on sale, the more fickle those consumers are likely to be. But I’ll write more about that another time…

Daily Deals Anticipated By Consumers


According to research from Yahoo! Mail and Ipsos OTX MediaCT, reported by EMarketer, consumers will not quickly tire of the daily deal websites and mailing offerings, nor the rush of established online companies like Google and Facebook to get into everyday promotions. In March, BIA/Kelsey predicted US daily deal site revenues would reach $1.25 billion this year.

The February 2011 survey found that US adult internet users subscribe to an average of almost three daily or weekly shopping emails or newsletters, and 56% of internet users subscribe to at least two of the emails.

Subscribers also say they regularly read the emails. Among those who subscribe to at least two, 61% said they read all of the messages. And most access the emails at least once a day.

Frequency of US Internet Users (18-34) Accessing Daily Deal Emails or E-Newsletters (% of Respondents; February 2011)

Frequency

% of Respondents

Once a day

38%

Several times a day

22

A few times a week

23

Once a week

7

A few times a month

5

Once a month

1

Less than once a month

2

Never

2

Source: eMarketer (Yahoo! Mail, Ipsos Consumer Pulse, March 2011), April 2011

Most recipients of daily deal emails also pass along the messages to friends and family, though with less frequency. Less than a quarter passed messages along every day, and 45% did so at least weekly.

Frequency Of Forwarding Daily Deals To Friends Of Family (% Of Subscribers To Daily Deal Or E-newsletter; Feb 2011; Ages 18-64)

Frequency of Forwarding

% of Respondents

Several times a day

12%

Once a day

10

A few times a week

17

Once a week

6

Once a month

5

Less than once a month

14

Never

22

Source: eMarketer (Yahoo! Mail, Ipsos Consumer Pulse, March 2011), April 2011

More than six in 10 respondents reported subscribing to more of these emails now than last year, and nearly half were still excited enough about them that they said they “can’t wait” to see the latest deals in the messages.

The survey also found that for most consumers, daily deal emails are appearing in their main inbox. Just 27% of internet users said they had a separate email account for such offers, further reinforcing the perception among subscribers that these emails are desirable and relevant.

For additional information, please visit eMarketer here.

Advertisements

How Much Are You Worth?


My Sunday Seth:

On pricing power

If you’re not getting paid what you’re worth, there are only two possible reasons:
1. People don’t know what you’re worth, or
2. You’re not (currently) worth as much as you believe

The first situation can’t happen unless you permit it to. If you’re undervalued, then you have a communication problem, one that you can solve by telling accurate stories that resonate.

Far more likely, though, is the second problem. If there are reasonable substitutes for your work, and those substitutes are seen as cheaper, then you’re not going to get the work. ‘Worth’ in this case means, “what does it cost to get something like that if something like that is what I want?”

A cheaper substitute might mean buying nothing. Personal coaches, for example, usually sell against this alternative. It’s not a matter of finding a cheaper coach, it’s more about having no coach at all. Same with live music. People don’t go to cheaper concerts, they just don’t value the concert enough to go at all.

And so we often find ourselve stuck, matching the other guy’s price, or worse, racing to the bottom to be cheaper. Cheaper is the last refuge of the marketer unable to invent a better product and tell a better story.

The goal, no matter what you sell, is to be seen as irreplaceable, essential and priceless. If you are all three, then you have pricing power. When the price charged is up to you, when you have the power to set the price, there is a line out the door and you can use pricing as a signaling mechanism, not merely a way to make a living.

Of course, the realization of what it takes to create value might break your heart, because it means you have to specialize, take risks, create art, leave a positive impact and adopt generosity in all you do. It means you have to develop extraordinary expertise and that you are almost always hanging way out of the boat, about to fall out.

The pricing power position in the market is coveted and valuable… The ability to have the power to set a price is at the heart of what it means to do business profitably, so of course there is a never-ending competition for pricing power.

The curse of the internet is that it provides competitive information, which makes pricing power ever more difficult to exercise. On the other hand, the benefit of the internet is that once you have it, the list of people who want to pay for your irreplaceable, essential and priceless contribution will get even longer.

Price isn’t the same as Value


From Seth Godin recently:

Compared to perfect: the price/value mismatch in content

“How’s the wine?”

You really can’t answer that question out of context. Compared to what? Compared to a hundred dollar bottle? Not so good. Compared to any other $12 bottle… great!

“How was the hotel?”

“How’s the service at the post office?”

In just about all the decisions we make, we consider the price. A shipper doesn’t expect the same level of service quality from a first class letter delivery than it does from an overnight international courier service. Of course not.

And yet…

A quick analysis of the top 100 titles on Amazon (movies, books, music, doesn’t matter what) shows zero correlation between the price and the reviews. (I didn’t do the math, but you’re welcome to… might be a good science fair entry). Try to imagine a similar disconnect if the subject was cars or clothing…

For any other good or service, the value of a free alternative that was any good would be infinite–free airplane tickets, free dinners at the cafe… When it comes to content, though, we rarely compare the experience other content at a similar price. We compare it to perfect.

People walking out of the afternoon bargain matinee at the movies don’t cut the film any slack because it was half price. Critics piling on to a music video on YouTube never mention the fact that HEY IT WAS FREE. There is no thrift store for content. Sure, we can get an old movie for ninety-nine cents, but if we hate it, it doesn’t matter how cheap it was. If we’re going to spend time, apparently, it better be perfect, the best there ever was, regardless of price.

This isn’t true for cars, potato chips, air travel, worker’s comp insurance…

Consider people walking out of a concert where tickets might be being scalped for as much as $1,000. That’s $40 or more for each song played–are they considering the price when they’re evaluating the experience? There’s a lot of nuance here… I’m certainly not arguing that expensive is always better.

In fact, I do think it’s probably true that a low price increases the negative feedback. That’s because a low price exposes the work to individuals that might not be raving fans.

Free is a valid marketing strategy. In fact it’s almost impossible for an idea to have mass impact without some sort of free (TV, radio, webpages, online videos… they’re all free). At the same time, it’s not clear to me that cheaper content outperforms expensive in many areas. As the marginal cost of delivering content drops to zero (all digital content meets this definition), I think there are valid marketing reasons to do the opposite of what economists expect.

Free gets you mass. Free, though, isn’t always the price that will help you achieve your goals.

Price is often a signalling mechanism, and perhaps nowhere more than in the area of content. Free enables your idea to spread, price, on the other hand, signals individuals and often ends up putting your idea in the right place. Mass shouldn’t always be the goal. Impact may matter more.

Still considering Groupon?

A lot has been talked about and written about Charlie Sheen, I mean Groupon in the past few months. Take a look at this from one of my clients:

Two Sides of the Social Buying Coin

Mar. 1, 2011

Thom Villing
Thom Villing

Two Sides of the Social Buying Coin

Lately all the buzz has been about social buying websites like Groupon, LivingSocial and SlickDeals. Everyone loves a bargain. I know I like the idea of getting half price at a good restaurant – whether it’s an old favorite or a new one I’ve been meaning to try. And it’s a great way for the business to get trial. Everyone wins, right?

Well, not so fast, my friend. Last month Scott Tingwald wrote about Groupon engaging in some activities that could hurt its brand. There are other factors retailers may want to consider before jumping on the social buying bandwagon.

The biggest concern for retailers should be whether they are willing to risk devaluing their product. There is always a point of diminishing return when it comes to discounting. If a product is always on sale, why would anyone ever buy it at full retail? Unless they are desperate, most consumers will simply wait until the next coupon mailer or this week’s “sale of the century.”

“There’s no doubt social buying sites have tremendous potential.”

There’s also the issue of selling below cost. If costs are higher than the selling price, “making it up on volume” is a dubious strategy. As I understand it, sites like Groupon essentially require retailers to discount their products by 75 percent. The consumer gets 50 percent off. The retailer and Groupon split the other 50 percent. That leaves the retailer with 25 cents on the dollar.

So what’s the problem? It’s just a temporary loss leader to stimulate trial. Nothing new or radical about that. Until it runs into that pesky old law of unintended consequences.

Let’s say all these new customers are just bargain hunters. They have no plans for return visits and don’t even fit in with the profile of the company’s regular customers. In fact, the influx of activity could upset the regulars and exceed the capacity of the organization to provide a positive experience for everyone. That’s seldom a good thing, and may be very costly.

But wait! There’s more. Never forget the nature of social media users. Many of them like to make their opinions known. That means reviews on sites like Yelp or Groupon itself. If those reviews are positive, great. If not… well, you get the picture.

There’s no doubt social buying sites have tremendous potential. For certain businesses, these sites can be a powerful new marketing tool. But as the old expression goes, “there are two sides to every coin.” So before you make the call, it would be good to know which is the winning side for your business.

To get our latest articles when they are posted, please subscribe by e-mail or RSS.

Training your Customers to Pay Less

Only a couple of companies can be the “Deep Discount Leader”. Walmart and _________.

Does anyone beat Walmart?

Maybe, but I can’t think of any.

So how do you beat Walmart? Not by being a better Walmart. Be the opposite. You can’t beat them on price but they are not perfect.

Unfortunately some people think that you have to offer discounts and “loss leaders” to attract customers. Drew wrote about this recently:

Groupon: Winner or Goat?

Posted: 22 Jan 2011 04:15 AM PST

The whole world is abuzz about Groupon. And who doesn’t love $10 worth of Cold Stone Creamery ice cream for $5? But is Groupon right for your business?

110117.groupon1

Groupon and other social-coupon sites (like LivingSocial and SocialBuy) all work the same way — a specified number of people have to pre-purchase the coupon for the deal to be activated. In theory, that’s how everyone wins. Groupon makes a prescribed amount, the buyers get a super deal and the retailer gets a guaranteed influx of cash and in theory, new customers.

But it’s not always a bed of roses. You’ve probably heard the nightmare of a story from Posie’s Cafe and their Groupon experience. Many businesses are declaring themselves “not interested” and as Chicago wine and cheese shop owner Greg O’Neil states — why replace full margin business with lower margin business?

As with most things, there isn’t a one size fits all answer. My Age of Conversation co-author and Texas based marketing guy Jay Ehret believes social coupons aren’t smart for most businesses. On the flip side, Duct Tape Marketer John Jantsch gives it a thumbs up.

There are plenty of studies and academic opinions on the topic too. Check out what Harvard Business School and Rice University had to say.

But…is it right for you? Here are the big pros and cons, as I see them.

Pro:

Big advertising boost. Groupon subscribers number in the tens of thousands or more in most cities. This is a very efficient way to generate a significant word of mouth buzz, especially if you get creative in your offer.

Exposure to many new customers. It stands to reason that you’re going to see a lot of new people coming through the door. Impress them and hopefully they’ll come back again and pay full price.

A way to test a new product or service. Want to know if the market is interested in something new? If the Groupon coupon tips — you might well have a winner!

Con:

Does the math work? Keep in mind that Groupon takes a pretty good sized cut. Half the rate charged plus 2.5% interest per transaction. (Here’s a Groupon ROI calculator you can use). So depending on your cost of goods and how many people actually redeem the coupon, you could lose your shirt like Posie’s Cafe.

What does it do to your customer/vendor/employee experience? Can your business handle a huge influx of buyers? How will the increased traffic impact your loyal customers? Your vendors? Your employees? Be sure you take all of that into account before you sign up.

What does it say about your brand? Do you want to be seen as a deep discounter? Does offering a 50% off price say something about your quality, margin or pricing strategy? How will your regulars feel about the fact that they’ve been paying full price all this time?

Lots of opinions out there but really, it’s something you need to examine for your specific business. Use the ROI calculator, weigh the pros and cons… and make the call.

The cartoon is courtesy of Tom Fishburne, the Marketoonist.

What we Really want for Christmas


Reward the person who is buying…

Shoppers Look to Rewards for Holiday Spending

Consumers are looking to stretch their holiday dollars with benefits from the various rewards programs they belong to, according to research from LoyaltyOne and Epsilon Targeting.

According to the companies’ research, which involved a nine-question survey sent to more than 700 U.S. households, 11% of consumers said they planned to use reward points or miles to augment their holiday spending this year. Of that group, 70% said they would use those points on purchases for other people, rather than for themselves.

According to the survey, more than 70% of consumers said they were occasional or frequent users of rewards programs. Of those users, 8.1% of them said they planned on spending more on holiday purchases this year, compared with 6.6% of the total respondents.

“Retailers who use data from their reward programs to respond to customers’ most pressing concerns at critical times like the holiday gift giving season can enhance the shopper experience and leverage relationships in a way that deepens loyalty to their store or their brand,” said Epsilon Loyalty Solutions Vice President John Bartold, in a statement.

Meanwhile, a separate survey found that Canadians are much more likely to use rewards programs than Americans. According to the Air Miles and American Express Holiday Rewards survey, 91% of Canadians use rewards programs, compared with 72% of Americans. Eighteen percent of Canadians said they plan to use those programs for holiday purchases, compared with 8% of Americans.

Americans, on the other hand, are more likely to shop online than Canadians, at a rate of 73% vs. 44% for general sites. However, when the online shopping involves a loyalty or rewards site, Canadians are three times more likely to shop online.

(Source: Marketing Daily, 12/04/10)

Why Low Prices, Discounts & Deals are Deadly

Some companies use them all the time.

But if price and discount was all you have to offer, you are either limiting your potential, or killing off your business.

Laura Ries explains:

Coupons, Groupon and Cocaine

Coupons001

These days marketers are going in exactly the wrong direction.

The recession has caused a lots of companies to panic. And when companies panic, they print coupons and throw up sale signs. Look in your mailbox, your email inbox or your newspaper and you will see what I mean. Everybody is having a sale.

But does this coupon-sale-discount strategy work?

Yes and no.

Yes, in the short term coupons, sales and discounts do work. Discounts bring in customers and ring up sales. But the short term is not the only thing that needs to be considered when building a business and brand.

Coupons are like cocaine. The first time you do it, it is the best feeling in the world. But over time it takes more and more of it to achieve that same feeling. And then you need it just to function. You are a cocaine addict. From the mug shots of Lindsay Lohan and others we know how personally destructive cocaine is, yet we fail to realize the similar brand-destroying danger of coupons.

Cocaine
Think about it. The effects of coupons, sales and discounts are exactly the same as cocaine. The first time you get a discount card in the mail you are elated! Wow! 10% off, 20% off, 2-for-1! You might rush out to the store and take advantage of the offer. But next time you drive by that store you think, I’ll just wait and see if there are any more coupons coming. Next time you drive by that store you get mad since you forgot the coupon. Eventually you refuse to step into the store without a coupon.

Try checking out of one of these stores without using a coupon and even the sales clerk looks at you like a pathetic loser. Nobody pays full price here what’s the matter with you! She may even reach down to pull out a coupon of her own to give you.

Coupons and discounts do one thing every well. They teach consumers that your regular prices are too high. A lesson consumers learn very quickly. Once they think your regular prices are too high, they won’t buy from you until given a discount. And desperate companies are too quick to oblige.

High-low pricing is devastating to the consumer’s opinion of your brand. It’s also devastating to your bottom line. If you are giving away the merchandise, you aren’t making any profits.

You might be thinking in this economy what other choice do I have? My competition is doing deals so I have to do them too.

Wrong. Its peer pressure. But Mom, all the other kids are doing cocaine so I have to do it too. No parent would buy that argument. And no marketer should either.

What is even scarier is that there is excitement surrounding the rise of coupons. Look at the recent love affair with Groupon. A recent front page article of Advertising Age magazine proclaims “Suddenly, Everyone wants to be on Groupon.”

Suddenly, everyone wants to damage their brand by undermining its position with Groupon! Great.

Many marketers make it even worse by thinking that Groupon can help their brand and don’t acknowledge any downsides. Instead of a Valupak delivered in your mailbox, Groupon is an electronic coupon delivered via the internet.

It is new? Yes.

Is it a cheaper form of discounting? Probably.

Do consumers like discounts? Yes.

Do discounts build your brand? No.

Do discounts damage your brand? Yes.

For local and small businesses, the rise of Groupon is seen as the obvious answer to the decline of the Yellow Pages. The marketing dollars for local businesses used to be predominately spent on a listing and an ad in the Yellow Pages. And for decades, this approach was enormously effective.
Of course, today the internet has made the Yellow Pages obsolete.

So how do you build a business whether you are Joe, the Plumber or JC Penny? It comes down to basic marketing philosophy.

Do you build a brand by:

1) Standing for something in the mind of the consumer?

2) Offering coupons and discounts?

My answer should be obvious, you build a brand by standing for something in the mind.

If you are Joe, the Plumber you might be the leading plumbing company in your area, you might be the 24-hour plumber focused on fast service, or you might be the high-end plumber focused on custom work, or you might be the plumber focused on commercial jobs or you might be something else that is focused and clear.

In any case, Joe needs a good name and a strong, unique visual. He needs to verbalize his focus so his customers can pass along his message. He needs to put his message on his truck, website, business cards. He may also need to advertise his message and credentials.

Many small businesses today are desperately looking for an easy replacement to the Yellow Pages. So they have jumped on Groupon as the Holy Grail.

I’m sorry to tell you, but Groupon isn’t the messiah as the hype promises. To me it looks more like coupons in sheep’s clothing.

Coupons don’t build a brand, they destroy it.