By Ann Meyer
Deal sites might bring in customers, but they also can drive down prices and profits.
“It’s no longer a deal. It’s a new market price,” said Jeff Glazer, owner of Images Med Spa in Skokie and co-founder of Deal Umpire, a new business-to-business website that uses an auction model to connect merchants with deal sites interested in handling their promotion.
Glazer came up with the auction concept after he tried to negotiate a smaller commission with the deal sites for his medical spa but wasn’t successful. “They wouldn’t move down on the 50 percent split,” he said.
Discount-oriented customers can be fickle
In the restaurant industry, consumers often shop deal sites for cheap eats but don’t always return to the restaurants to pay full price. The deal sites attract “customers that have zero loyalty to restaurants,” said Drew Nieporent, founder of New York-based Myriad Restaurant Group, at the National Restaurant Association Show last month in Chicago.
While Nieporent is working to offset the trend through relationship-building strategies such as personal table visits by his restaurants’ chefs, other merchants say they risk losing out to competitors if they don’t offer deals.
After studying the market, Glazer and business partner Ryan Leavitt launched Deal Umpire to give merchants more control over the discounts and commissions involved in daily deals. The site provides for improved communication and terms, Leavitt said. With new deal sites cropping up daily, merchants are bombarded with cold calls from the sites’ sales representatives, and deciphering the options can be confusing.
“We provide transparency into that market, so you don’t have to talk to 50 sales people,” Leavitt said.
Most terms negotiable
Merchants post their deals, then let the sites bid on the revenue split, market reach and other terms. Small businesses often are concerned about selling more deals than they can adequately manage, so they can cap their offers, Leavitt said. “We’re alleviating some major pain points” for merchants, he said.
When a merchant picks a deal site to do business with, the winning deal site pays Deal Umpire $99, Leavitt said. In addition, merchants pay a flat fee of $10 to put an offer up for bid.
It’s a novel concept, he said. “Nobody brings it together and creates a competitive marketplace.” The startup was set to begin testing the platform with 10 to 15 deal sites this week, Leavitt said.
At the same time, more merchants are testing the new Groupon Now program, which uses mobile technology to match consumers with deals at nearby restaurants and retail stores. It also allows merchants to limit offers, so that they aren’t overwhelmed.
Location-based Groupon Now limits offers
Corey Kaplan, president and owner of NYC Bagel Deli, likes Groupon Now because it lets him manage his own deal online. “We control the number” of Groupons offered, he said.
The location-based Groupon Now, introduced last month, pulls up deals at merchants and restaurants near the customer, said Groupon spokeswoman Kelsey O’Neill. The program currently works on iPhones and Droid smartphones as well as on the Internet using consumers’ ZIP codes, O’Neill said. The program allows merchants to make limited-time offers to bring in customers during a slow period, she said. In addition, the merchant received a larger cut of the deal than the 50 percent split of regular Groupons because merchants manage the offer themselves, she said.
The quick delivery and limited nature of Groupon Now appeals to Kaplan, who often has a surplus of bagels at the end of the day. It’s easier to post a deal limited to 20 consumers during a slow period than one that could attract thousands, he said.
In fact, NYC Bagel Deli sold more than 10,000 Groupons last year offering $10 worth of product for $4. While the deli didn’t break even on the deal, it was effective as a customer acquisition program, he said. About 9,800 of the Groupons were redeemed, and more than 70 percent were purchased by new customers, he said. Despite the tough economy, Kaplan’s sales climbed 30 percent after he offered the Groupon deal.
Groupon offers a variety of tools to help merchants prepare for deals that go out to an e-mail list of 1 million or more, O’Neill said. The company provides webinars and checklists offering pointers. “A lot of businesses don’t realize there’s the ability to cap that deal,” O’Neill said. “They think Groupon will put them out of business.”