We’ve all seen these cashless advertising systems that are coming onto the market. Sites like Groupon, Living Social, and Upstate Perks are becoming more popular every day. Some are so popular that they can afford Superbowl commercials. But I sometimes wonder if the business owners are realizing the cost they are incurring to take advantage of these systems.
I was enjoying lunch at a potential new sponsor in Greenville the other day when a woman came in and sat down a couple of bar stools away from me. Although the place has only been open a couple of weeks, she’s already a regular and she started advising the manager on a couple of marketing ideas, particularly living social. I just sat there and listened, and really appreciated that the regular was outlying the pros and cons to running a special on living social. I only interjected a comment when they were summarizing that the only cost to a living social promo was the fee that living social took in return for all the site promotion they do. That’s when I kindly pointed out that the true cost of the living social promo was not only the percentage that living social took, but also the giveaway amount for the promo. “Well, yeah, that too” they both said, like it was no big deal. I inquired to what the total cost was for a 50% off certificate, so that I could get them both to do a little math. They came up with the right answer, it costs the business roughly 75% of their gross sales to run a 50% off offer on a ‘cashless’ system like this. Of course, that’s assuming that they have to meet their end of deal and provide their goods or service to all that bought. My only other question to them was do you think most places can afford to give away 75% or the gross sales and remain in business?
I’ve used this same example a number of times. I think it can be good if you have a new, repeat business and want to create awareness. However, business owners have to be careful about the deal and understand the full cost. I think if a nice restaurant offered a $20 gift card for $10 then the numbers MIGHT make sense.
There are much more effective ways for businesses to do the same thing and cut out the middle man (Living Social, Groupon) – see Facebook Deals which is currently in Beta.
Doug
Doug, I agree about your example for the nice restaurant, not sure if that deal would even be allowed though. I have heard of at least one case here in the Upstate that the business was denied a deal because they determined they wouldn’t make enough money from it. Superbowl commercial are expensive!