• Link their Foursquare account to their AMEX card
• Go to a small business with the AMEX deal ($25 off if you purchase $25 or more with your linked card)
• Checkin on Forsquare
• Pay with their AMEX
• Get a $25 credit on their AMEX bill

This was pretty clever and I used the deal at a local pub, Edgewood Tavern. I didn’t have to show my phone to the server or anything, it  just happened behind the scenes at AMEX.

However, last night I was at Pure Taqueria in Inman Park (Atlanta) and saw there was a $10 off deal from AMEX if I checked in on Foursquare. I’m in pretty tight with the folks over there, so I asked the GM how he set up the deal with AMEX – were they splitting the discount cost a la Groupon or what.

Here’s the thing. He had no idea the AMEX deal existed. Apparently, it was all on AMEX. What? (inflection should go from low note to high note)

I opened up Foursquare again and started scrolling through all of the local businesses around me. It was like an Oprah moment – everybody had an AMEX deal! After leaving Pure, I went to Savi Urban Market and got a $10 discount on a bottle of wine to celebrate (they had no idea the deal existed either).

What’s going on and why?

So, in it’s simplest form, I’m buying $10 worth of stuff, the business is getting $10 (minus AMEX transaction fees), and I get $10 back. Who’s paying for this and why?

Word on the street is that the program doesn’t drive any revenue to Foursquare, but it represents an initial foray into going “beyond checkins,” an effort that might soon roll in deals from Living Social and Groupon. That will be interesting, but who is paying for the AMEX deal? It seems like AMEX.

I found some insights here and there, but I thought I would add my own.

The arrangement in its current form doesn’t make sense. Foursquare doesn’t generate revenue and AMEX is having to cover the cost of all the discounts. Currently, it only would work for AMEX if the effort increased the number of AMEX users (driving revenue from annual membership fees), increased the frequency users chose their AMEX card over their Visa card (driving revenue from increased transaction fees), and/or dramatically increased the average transaction size for an AMEX user (again, increased transaction fees). Even if the deal included Foursquare sharing user check-in information with AMEX, what would it tell them that they couldn’t already get by tracking other card charges… except maybe if the user checked in at non-businesses like parks and transit stations.

Foursquare gets closer to being able to claim that its online marketing drives consumer behavior and leads to local business revenue. If they gain access to transaction amount data, they get some awesome insights on the value of this marketing. Of course, in my case, I was at two of the businesses uninfluenced by Foursquare… but my new bottle of wine was effective marketing. Also, Foursquare needs to generate some revenue from all of this.

The Future of Foursquare

Here is my prediction about where all of this is going. Foursquare is striving to be the clearinghouse of location based deals. It will remain focused on doing everything it can to gain adoption by users and then aggregate local business deals from whomever can make them – AMEX, Groupon, Living Social, local news papers, etc. Foursquare gets to focus on technology and lets all of these other guys field the sales force.

AMEX (and potentially other credit cards) will move away from eating the cost for their local deals and begin generating revenue from local businesses paying for these promotions – similar to the daily deals sites. This will be a marketing cost for the local business, but with Foursquare in the loop, they will gain more insight to user behavior, such as:

• Was the deal redeemed by a new visitor or returning visitor (in Foursquare terms, a Newbie checkin) – works regardless of who sold the deal to the business
• Did new customers redeeming the deal ever return (tracked through subsequent checkins) – works regardless of who sold the deal to the local business
• Automated tracking of average customer spend, lifetime value, etc tied to the credit card (in AMEX’s case), regardless of what POS they use – only works if a credit card company sold the deal to the local business

That is pretty Rock and Roll!

ScoutMob ROI Calculator

I’ve provided a link to the Excel ScoutMob Calculator which also includes a tab for the GroupOn calculator for comparison. Because they have different business models, it’s not a one-to-one comparison, but it should give you an idea of how things shake out – one of the biggest conceptually changes is how I represent COGS, so pay special attention to that. Unlike my first post regarding GroupOn, I won’t bore everyone with the details, but just provide an explanation of what the parameters mean.

The calculator is divided into 4 sections. The top left section is where you put in your numbers – everything else is automated. The section at the bottom left cuts to the chase and summarizes what kind of profits – if any – you can expect based on your assumptions. The two sections on the right are scratch work related to the Cost of Goods Sold and the income (not profit) from the whole endeavor.

Calculation Variables

• Discount (D) – What is the percent discount you are offering. Typically, this seems to be 50%.
• Maximum Discount (X) – What is the maximum discount anyone can get when redeeming the offer.
• Average Discount Ticket (A) – What is the face value of the average ticket before the discount is applied. Any amount above X/D is the happy place where you will make your normal margin.
• Cost Of Goods Percentage (G) – What percent of the sell price represents your costs. If you are a restaurant and your costs represent 33.33% of your sell price (it costs $10 to sell something for $30), that is the number you use. Ideally, this includes overhead and labor costs as well, but use it as you see fit.
• Number of Actions (T) – How many people take action on your offer. This is a combination of offers redeemed through smart phones, text messages and emails.
• Printed/Texted Action (P) – What percent of people will request a printed/texted version of the offer instead of using a smart phone application? I have no idea what this is, but all the cool kids use smart phones, so I set it low at 10%.
• Redeemed printed/texted certificates percentage (R) - What percent of the printed/texted certificates will actually be redeemed? I set this to 68% because that is the number from the one real-world case study I have from GroupOn. I actually think it is lower for ScoutMob because the consumer doesn’t pay for the offer so is less likely to use it, but there ya go.
• Cost for Smart Phone Use (S) – How much does ScoutMob charge for each redemption through their smart phone app. The word on the street is that it is “a couple of dollars” so I used $2.
• Cost for printed/texted coupon redemption (C) - the amount ScoutMob charges for each emailed or texted offer. Again, I’m not sure what this is, but $.50 seems in line with the word on the street.
• New Patron % (N) – When it’s all said and done, what percent of the people that took advantage of a ScoutMob offer (through smart phone, text or email) will actually return to your business without a discount. This is one of the weakest parts of this model so be wary – I assumed 75%, although I completely made that number up and honestly think it is high, but it’s in line with the number I assumed for Groupon (which I also think is high).
• New Patron Long Time income (L) – How much will the average returning customer calculated above spend over their “lifetime.” Lifetime is up for interpretation, but I think of it as being over the next year so the ROI has a nice, set length of time.
• Brand Value (V) – Business owners have indicated a concern over how deep discounts might affect their brand because it could be seen as a sign of desperation. Others have said that there is a lot of value in the gained brand recognition. I have no idea how to determine this so I shifted the burden to the business… enter how you think the promotion will affect your business’ profits in real dollars – positively or negatively.

Results Section

This section is super easy to interpret, but keep in mind that it is based on all of the numbers you entered above and that Garbage In = Garbage Out.

• Campaign Profits – What profit will you make from all of the people that use a ScoutMob offer
• Total Long Term Profit - What profit will you make due to revenue generated because of the campaign beyond the special offer. Again, I think of this as over the course of a year.
• ROI – a very simple ROI calculation that compares the profits you made to how much the promotion cost you.

Cost of Investment

What does all of this cost you?

• Total number of redeemed offers - this is kind of important. It assumes that 100% of people that redeem through a Smart Phone are actually at your business and complete the transaction. Added to this are the people that had the offer either emailed or texted to them and applies the redemption rate parameter (R).
• Discounted COGS – the cost to provide the goods or services within the discounted amount. For example, if you offer 50% off with a maximum discount of $10, this is the cost for the first $20 of the average ticket ($20*50%=$10 maximum discount).
• GOGS for ticket beyond certificate amount - this is your cost in the case that the average ticket value exceeds the maximum discount limit (i.e. the $20 mentioned above). Building on the previous example, if the average ticket value is $35, the first $20 is within the discount window and the next $15 benefits from your normal margin … your costs for that $10 is shown here.
• Amount Paid to Scoutmob – this is the amount you pay to Scoutmob for all of the redemptions
• GOGS lifelong purchase costs – This is your costs for all of the people you hope will return without the discount incentive.
• Brand Damage Cost – if you specified that you think the promotion will damage your brand (by entering a negative number for V), that number is represented here.

Income from Investment

This section is the scratch work for the other side of the equation – how much coin will flow into your bank account based on the promotion.

• Initial Discount Offer Income – This is the amount of income that will be generated from offer redemption within the maximum discount range
• Income from sells beyond Certificate Amount - If the average ticket exceeds the maximum discount range, that income is reflected here
• New Patron Long Time income - The amount of income that will be generated from all of those returning customers you are counting on.
• Brand Benefit Income - If you specified that you think there will be a brand benefit from the promotion (by entering a positive number for V), it is reflected here.

Summary

There is no clear-cut way to evaluate if you should do one of these promotions or not, but at least you now have some tools to assist in the decision. If you have any real world numbers from your promotion, I’d love to have them. Let me know what you think!

• Get lots of people to interact with your profile – view images and videos, post on your wall, and especially comment on your posts. How you do this is a science in itself.
• Posting links is better than just posting text status updates
• Posting photos and videos is better than posting links

Is group buying going to be the new tech trend like “checking in?” As successful as Groupon is with their extensive email list, what happens if/when Facebook enters the fray?

http://www.spaboomblog.com/2010/dont-sell-your-soul-to-the-discount-devil

The businesses I know that have participated in these campaigns have seemed pretty happy with the results, but none of them tracked their numbers. That meant I had to make some assumptions, but no longer.

Case Study

Here are the metrics from a real GroupOn campaign. I would expect that results will vary from business to businesss and especially between different industries. If you need to better understand these numbers, read the previous post.

• Business Type: Very Casual Dining
• Business Age: Fairly new business
• GroupOn offer: $20 certificate for $10
• GroupOn’s commission: 50%
• Total Sold: 1,225
• Redemption Rate: 68% (32% were never cashed in)
• Average Ticket Amount (with certificate use): $20 (people spent pretty close to the face value amount)
• Estimated number of new, recurring customers: 75%. This is expressed as a % of the total number of certificates sold. These are people that will come back even without a certificate.
• Estimated Long term, recurring customer income: $20. Without a certificate, the average ticket is about $10. This means that it is assumed the new, recurring customers mentioned are expected to come in about 4 times over the “long term”
• Normal Margin on sales: I did a loose calculation because I knew the net result… 230% margin or COGS is about 30% ticket price.
• Brand Value: $0. This is such a fuzzy number, that I left it as zero.

The real world result is that this business owner was paid $6,000 with costs around $5,000. According to the super-awesome spreadsheet – using the numbers above – the analysis shows:

• Campaign Profit: $1,076.52
• Total Long Term Profit: $13,883.33
• ROI over the “Long Term”: 130.77%

Not too shabby.

Footnotes

There are some notes worth mentioning:

• The business was paid by GroupOn in three, equal payments over 1-2 months. They were happy with this.
• Purchases with certificates with Tickets less than $20 don’t get change. Typically, they would order something else to get over the $20 level.
• Redemption volume was heavy in the first and last month, the numbers were:
  • Month 1 – 225
  • Month 2 – 150
  • Month 3 – 100
  • Month 4 – 50
  • Month 5 – 50
  • Month 6 – 250
• The number of new, recurring customers is very difficult to determine and is basically a gut-check. Unfortunately, it is largely responsible for the determination of the Long Term Profit… so be careful how you use it.
• I assumed “Long Term” meant over the course of a year when determining some of the more “magical” numbers. You can assume whatever you want, but make sure you understand what it all means.
• The calculator is intended to be functional, not fancy. It’s pretty basic, but still very, very sexy.

I’m currently in the camp that believes quality is better than quantity. I actually read the profiles and posts of people I follow on Twitter and I don’t automatically follow people that follow me. If I get a friend request on Facebook, I check to see if I know the person and, if not, I check to see what friends we have in common. The justification I have for both myself and the organizations I work with is, having an engaged audience is more valuable than the raw numbers. I equate people that blindly follow others on social media to someone grabbing one of those business card fishbowls you see in restaurants – you can add all of these people to your contact list, but will most likely never do business with any of them. What’s the point?

The counter argument is that the more people you can reach, the more likely it is that your message will fall on friendly ears. If 2% of those fishbowl contacts is actually interested in what you are doing, then that is one successful connection for every 50 cards you filch.

I like analytics quite a bit, but I think that the real measurements that have value are in absolute numbers, not ratios. How many people are actually interacting with you through retweets, mentions, direct messages, comments, likes and wall posts? If you can push these numbers up that show engagement (without annoying people) by following every single person, then your ratio is shot, but so what? If you can do it by exerting more energy to vet your audience – fantastic.

Here are what I believe are the secrets:

1. Add value to the conversation instead of just acting as a shill for your interests. So many organizations create accounts and turn on the traditional broadcast tower … “buy my product, visit my business, enroll in my self help program, etc.” What information are you providing that help people pursue their interests versus just another advertisement?
2. Go deep on the conversations your audience wants to have. Social Media is a two way street and your opportunity to have an ongoing conversation, build relationships, and turn bystanders into passionate patrons.
3. Focus on the real metrics that measure if people are interested in what you have to say versus how many people are within earshot.

I’d love to know what strategies others are using. Let me know what you think.

UPDATE 7/16/2010 – I’ve also added a new post with real world numbers with a Groupon Case Study.

How do you know if GroupOn is right for you? I like numbers quite a bit and became obsessed with this, so I’ve put together an ROI calculation to try to answer this question. This post includes the calculation I came up with towards the beginning and the detailed breakdown of what everything means for any masochists that like that sort of thing.

At a very high level, the GroupOn pitch seems questionable. They want you to sell a certificate through GroupOn (say $30) for a deep discount (say $15) and they are going to take a percent of the income (say 50% or $7.50). In this example, you are getting 25% of what you would normally. Why would anyone do this?

• New Patrons – This is the biggest reason. If you can get new patrons into your organization with a deep discount and they keep coming back and spending big bucks, there is a lifelong value.
• Cash flow - You get paid the day after the promotion which can help out if you need to buy that new oven or make payroll. Since the certificate is valid until the expiration date, you can expect the loss to be spread out over a period of time – although most of it will probably be pretty soon.
• Unredeemed certificates - there will be some people that pay for the deal, but never actually use the certificate. That’s just free money.
• Average ticket value exceeds offer -If you limit the offer to one certificate per table (for example),  what if they bring friends and buy a boat load of food – only getting a deal on the first $30? Nice.

There is one additional cost to also consider, though.

• Brand value. How do you think offering this type of outrageous deal will affect your image? You might decide this is positive, negative or not a concern.

Define your numbers

So should you do it? Let’s ignore the immediate Cash Flow benefit and make some assumptions.

• Offer Amount (O) – you are going to offer a $30 certificate and only allow one  to be redeemed per table
• Sell Amount (S) – the purchase price for these certificates will be $15
• GroupOn’s Cut (G) – GroupOn’s cut will be 50% of the sell price… for every $15 certificate, they get $7.50 and you get $7.50
• Margin (M) – your margin is 50%, i.e., if it costs you $20 to make something, you are going to sell it for $30.
• Average Ticket (A) – the average ticket of people using the offer will be $50
• Redeemed Certificates (R) – only 80% of certificates will be redeemed
• Total sold (T) - you expect to sell 500 of these
• New patron percentage (N) – you expect 40% of the people taking advantage of the offer to be new patrons (the remainder are people that are already patrons). This is a number that you pretty much have to make up, but 40% seems pretty good.
• New Patron Lifetime Value (L) – We’ll say the average patron will spend $150 with you (beyond the offer) over a period of 1 year (if you choose 2 years, 3 years, etc, your ROI will be spread over that period). Determining this value is a science on its own so good luck coming up with the right number.  Taken in conjunction with your Margin, this can be used to determine profit from your average patron.
• Brand Value (V) – Some organizations worry that offering such deep discounts will damage their brand and make them look “desperate.” Others might think there is an overall brand benefit that is not captured in the lifetime patron value. This variable is intended to capture this “fuzzy” influence and represents how the promotion will affect revenue over a period of 1 year (if you choose 2 years, 3 years, etc, your ROI will be spread over that period) SEPARATE FROM INCOME RELATED TO NEW PATRONS. If you think it will increase revenue over time, choose a positive number, but since I have heard concerns about the negative effects, I will choose a negative number and that I am making up – -$4,500.

GroupOn ROI Calculation

Here it is… the total long term profit you can expect from this promotion is:

Total initial income … + … Loss from certificate redemption … + … New patron Benefit … + … Brand Damage

T*(S-G*S) …. + …. R*T*[(A-O)-(A-O)/(1+M) - O/(1+M)] … + … T*N*(L-L/(1+M) … + … (V-V/(1+M)) = PROFIT

or ….

500 * ($15 – .5*$15) … + … .8*500*[($50-$30)-($50-$30)/(1+.5)] … + … 500*.4*($150-$150/(1+.5) … + … (-$4,500-(-$4,500)/(1+.5)) = $3,750 … – … $5,332 … + … $10,000 … – … $1,500  = $6,918

For the purists out there, this is not technically ROI, which is defined as (gain from investment – cost of investment) / (cost of investment). Fine.

Cost of Investment

The cost of investment is:

What it costs you to redeem certificates … + … what it costs you to fulfill purchases beyond the limits of the offering … + … your cost of fulfilling lifelong purchases … + … brand value

R*T*(O/1+M) … + … R*T*(A-O)/(1+M) … + … T*N*(L/(1+M) … + … V

or …

.8*500*($30/(1+.5) … + … .8*500*($50-$30)/(1+.5) … + … 500*.4*($150/(1+.5)) … + … $4,500 = $37,833

NOTE: You should move the brand value to Gain calculation if you think it will be positive.

Gain from Investment

The gain can be determined as:

Initial revenue from offer … + …. income from sells beyond the limits of the offering … + … income from life long purchases

T*(S-G*S) … + … R*T*(A-O) … + … T*N*L

or …

500*($15-.5*$15) … + … + .8*500*($50-$30) … + … 500*.4*$150 = $41,750

Official ROI

ROI = ($41,750 – $37,833)/($37,833) = 10.35%

KEEP IN MIND THAT THIS ROI IS FOR THE PERIOD YOUR CONSIDERING FOR BRAND VALUE AND PATRON LIFETIME (if you’ve entered a value assuming 1 year, 2 years, 3 years, etc, this is the ROI for that period).

Also keep in mind that these are hypothetical numbers. Your numbers will most likely be different.

Calculation details for Masochists

TOTAL INITIAL INCOME

How much money do you receive from GroupOn the day after the sell? This is the total number of certificates sold minus GroupOn’s cut, or:

T*(S-G*S) = 500 * ($15 – $15*.5) = $3,750

AMOUNT OF LOSS BASED ON REDEMPTION OF CERTIFICATES

For every certificate redeemed, you are going to have to give away a certain amount of inventory, service, etc (O=$30), but the cost to you will be less than the certificate amount because of your margin:

O/(1+M) => $30/(1.5)=> $20 (what it costs you to redeem a certificate)

You also will be able to make a profit on the average ticket amount above the offer amount, or the total income above this amount minus the cost:

(A-O) – (A-O)/(1+M) => ($50-$30) – ($50-$30)/(1.5) => $20-$13.33 = $6.67 (additional profit per redeemed certificate based on assumed Average Ticket)

So for each certificate redeemed, your profit is most likely negative:

(A-O)-(A-O)/(1+M) – O/(1+M) = $6.67 – $20 =  – $13.33

But some people will not redeem their certificates, which means free money for you! Taking into account the total number of certificates sold (T=500) and the redemption rate (R=.8) leads to an updated equation of:

R*T*[(A-O)-(A-O)/(1+M) - O/(1+M)] => .8*500*[($50-$30) - ($50-$30)/(1+.5) - $30/(1+.5)] = -$5,332.

So at this point, you have gained initial income of $3,750 and, over the course of several months, it is forecasted to cost you $5,332 leading to a net loss of $1,582… but there are some additional potential benefits.

NEW PATRON BENEFIT

We’ve talked about the obvious income and costs, but there are other benefits. The idea of paying for a print ad seems pretty reasonable because it might attract new patrons and you’re willing to pay money for it, so why not GroupOn? It is advertising and seems pretty effective at getting people to show up.

You’ve made an assumption about how much the average new patron will spend at your organization over their lifetime (L=$100). So the amount of profit you expect to make from the average new patron, after you take into account the costs associated with the transactions is:

L-L/(1+M) => $150 – $150/(1+.5) = $50

When taking into account the promotion by GroupOn, people sharing the information with friends, buyers bringing friends with them to redeem certificates, etc., you expect a certain number of new patrons tied to the number of certificates sold (T=500) and a New Patron Percentage (N=.4). This results in an expected increase of profit of:

T*N*(L-L/(1+M) => 500*.4*($150-$150/(1+.5)) = $10,000

There are 3 major things that should be noted:

1. The lifelong value of a customer is hard to determine and we kind of made up the actual number. We also made up how we calculated the number of new patrons your promotions will generate.
2. It might or might not take into account the viral nature of new patrons bringing along friends and introducing them to your organization. This is potentially a chain reaction that can greatly amplify this number.
3. Lifelong value is something that can build up over a very long time. This is not a quick income event and will likely be spread over a period of years.

With that being said, the running tally of the GroupOn benefit is now at a Net Profit (over time) of $10,000 – $1,582 = $8,418 in profits.

BRAND DAMAGE

Do these deep discounts damage a brand’s image and lead to reduced sales? I don’t know, but we’ve assumed it does and have pulled out of thin air a number to represent the decreased regular income from running this promotion (V=$4,500). Since this is “top line revenue,” to understand the impact on the bottom line, we need to consider your Margin.

(V-V/(1+M))=> (-$4,500 – (-$4,500)/(1.5))=-$1,500

Additional Comments

This was a lot of work so please let me know if I made any mistakes. Also, if anyone wants to build a calculator to run these numbers, let me know!

There are a number of emerging (or emerged) solutions that follow a basic recipe for what I call Flash Mob Promotions:

1. Offer a ridiculously amazing special offer for a local business
2. Promote the crap out of it to people that love these deals
3. (Optional) Require that a certain number of people take advantage of the offer before it becomes “active”

The motivation for local organizations is to get a boat load of people to visit them in the hopes of turning them into patrons and possibly spend money beyond the terms of the offer. To help you better understand what these solutions are all about, below is a description of a few companies active in this area. The hope is that it helps explain what they are offering so you’re better informed when they come a’knocking.

Restaurant.com

Restaurant.com is what I consider the predecessor of this movement and I don’t technically consider them to be Flash Mob Promotions, but they are worth understanding. From what I’ve heard, patrons love the deals, but restaurants aren’t the biggest fans.

• Offer and Restrictions – Local restaurants sign up with Restaurant.com and configure their offer. This typically is in the form of a $25 gift certificate for $10, $50 gift certificate for $20, etc. They post the offer on their website and promote in various ways to get people to buy these certificates. Typical restrictions on these certificates are conditions like minimum purchase amounts, valid for dinner only, 18% gratuity automatically added to bill, excludes alcohol, expiration date, etc.
• Taking Advantage of Offer - The process for patrons is pretty straightforward
  • Go to restaurant.com
  • Search for a restaurant
  • Buy a certificate
  • It gets emailed to you
• Promotion Channels – mostly through their website and email promotions. They don’t seem to take much advantage of social media.
  • Facebook – 23,400 fans
  • Twitter – 2,300 followers
• Revenue model - They keep all of the money paid for the certificates.

What they are selling is marketing. You give away $25 worth of food in exchange for new (hopefully) patrons and restaurant.com gets paid $10.

GroupOn

Groupon has great buzz from both patrons and businesses. They have a video to explain it, too.

• Offer and Restrictions - You create a “Deal of the Day” with GroupOn (they only have one per market). Typically, these are offers similar to the ones described in the Restaurants.com model, but they seem much more savvy at getting the word out. Also, the ability to buy the certificates only lasts for one day (although they can be redeemed anytime before the expiration date), which creates a sense of urgency. As a final condition, a minimum number of people have to take advantage of the deal before “The deal is on” – if you are offering a $25 gift certificate for $10, you can specify that 200 people must take advantage of it before any can be officially sold.
• Taking advantage of Offer - The steps a patron follows to take advantage of an offer are:
  • They find out about the deal of the day through email, Facebook, twitter, mobile app,  etc.
  • They indicate how many they are interested in buying and provide credit card information
  • As soon as the minimum number of participants is reached, “the deal is on” and everyone’s credit cards are charged
  • Users can log in to their GroupOn account and print the offer.
  • At anytime before the expiration date, they can use the certificate – subject to the terms of use
• Promotion Channels – GroupOn is much more savvy about using social media than Restaurant.com… they actually have a separate Twitter account and Facebook page for each city. They also use email alerts as well as their website and a mobile app.
  • Facebook – 7,600 for Atlanta (23,000 fans for Chicago)
  • Twitter – 3,000 for Atlanta (10,000 followers for Chicago)
• Revenue model – Groupon keeps a portion of the purchase price and gives the rest to the business. I’ve heard this is typically 50%. Business receives their cut immediately after the Deal of the Day expires.

The big benefit I see for businesses is cash flow – you get paid up front for all of the purchased certificates. You also hope the deal will drive traffic, gain new patrons that have a significant life-long value, and that the average ticket price will exceed any offer’s limit.

The concerns I have are related to cost. How many new patrons will you get, what do your margins look like, what will be your average ticket amount? In short, does this make business sense? Unfortunately, you have to decide that. Also, some business have expressed concern about how offering such deep discounts may affect their brand image.

NOTE: There are a few other sites, like LivingSocial that use a similar model.

ScoutMob

Scoutmob is a newer entrant into the market and is based in Atlanta (yeah!).

• Offer and Restrictions - ScoutMob doesn’t sell gift certificates/coupons, they market promotions of ridiculously great offers. You make a deal with ScoutMob to be their deal of the day (generally 40% to 60% discount) and tell them how many people have to subscribe to the offer before the “deal is on” (similar to GroupOn). They then promote the crap out of you and hope the minimum number of people sign up. Another difference compared to GroupOn is that GroupOn only makes the deal available for one day, but purchased certificates have an expiration date. ScoutMob makes their offers available over a period of time (seems like about 3 months), but promote you heavily on the day the deal is announced. On the day your deal launches, people can have the coupon texted or emailed to them, after that they can only redeem the offer through the mobile app and have to be at your location (determined through GPS) to access the coupon.
• Taking Advantage of Offer – Scoutmob uses a slightly different model than GroupOn for deals. This is divided into how they handle Deals of the Day versus how they handle the offer through their mobile App.
  • Mobile App
    • A person launches the app and can browse all of the deals that are still active – including the deals close to them (determined by their GPS location)
    • If they find a deal they want, they go to the business and “Redeem” the offer.
    • ScoutMob checks their GPS location to see if they are actually at the business and, if so, displays the offer.
    • The offer is shown to the business and marked as “used”
    • Patron gets the discount
  • Deal of the Day – from the ScoutMob website. This only works for the deal of the day, not for deals that launched on previous days.
    • People find out about the deal of the day through email, Facebook, Twitter, etc.
    • They specify they want the deal and receive a text message to their cell phone (you can have it emailed if you want a physical coupon)
    • The patron shows the offer at the business and gets the deal. Both the text message and email have an expiration date associated with them.
• Promotion Channels – ScoutMob uses similar promotion methods to GroupOn, however, because patrons can opt into offers over a longer time, ScoutMob has added functionality on their mobile apps that allow people to redeem on the go…  based on where they are (this is called Location Based Service or LBS).
  • Facebook – 2,000 followers
  • Twitter – 5,100 for Atlanta
• Revenue model – ScoutMob’s pricing model has 2 parts:
  • Deal of the Day texts and emails – they charge a small fee for each message sent
  • Mobile App Redemption – they charge a few dollars for each offer redeemed through their app. This is more because the business knows that the patron was actually at their location (GPS confirmed in order for the patron to gain access to the offer).

One of the benefits that I really like about ScoutMob is the mobile app redemption… you actually know the number of people that were in your business (or really close by). Similar to GroupOn, the big goal is trying to drive traffic and, since ScoutMob doesn’t require people to pay anything up front, there is an argument to be made that more patrons will take advantage of their offers.

The concern is still cost. Does ScoutMob actually drive traffic, gain new patrons, and lead to ticket amounts that exceed offer limits? Maybe. They might even do it better than GroupOn, but with GroupOn you get the up front cash benefit, although with ScoutMob it seems like you get to keep more of each transaction.

* Special thanks to David Payne from ScoutMob for giving me the 411!

Conclusion

All of this is really, really cool stuff and is only going to get cooler. The biggest problem I see is tying the business decision to ROI… I smell a future blog post!

I would love to hear about people’s experiences using these or similar offerings as well as from the providers themselves!