Customer Acquisition is (Still) King for Local Merchants

For many small businesses, the biggest challenge is acquiring new customers at an acceptable cost. And in 2011, we saw several new approaches to customer acquisition gain momentum: Facebook Ads and group deals.





According to our most recent Merchant Confidence Index survey of 2,500 local business owners across the U.S., while newspaper ads and direct mail – tried-and-true offline customer acquisition techniques – are still popular, with 25% and 24% of merchants using them, some 12% of merchants have offered a daily deal – up 33% compared to three months ago – and 24% bought targeted Facebook Ads.

Daily deals appear to be effective in driving customer acquisition tool for some small businesses.  According to the Merchant Confidence Index, 75% of merchants who have used daily deals in the past would do so again.  Of those who would use daily deals again, 61% of said they’d use them again because daily deals are “effective for customer acquisition.” While only 37% of merchants said the deals were “profitable”, it seems getting a new customer through the door makes daily deals worth trying again.

Local merchants are also acquiring new customers via Facebook Ads, the targeted paid ads offered by the world’s largest social network.  Some 38% of merchants said they’d use Facebook Ads again due to their effectiveness as a customer acquisition tool.  But for those who wouldn’t use Facebook Ads again, 66% said it’s because the ads did not work to acquire new customers – showing that customer acquisition is a top priority for small businesses.

Customer acquisition is so important to local merchants, the majority of respondents said they’d be willing to purchase qualified prospect information on a pay-per-lead basis. Over 60% of merchants in the financial services industry would pay for leads, while one-third of merchants in the automotive, construction, and home improvement industries would.  Look for this strategy to gain steam in 2012.

Marketing strategies that aren’t proven to bring in new customers are, unsurprisingly, not very popular with local merchants looking to grow their businesses. Mobile marketing, for example, has been slow to catch on with local merchants. Only 22% of merchants have tried mobile marketing, with 72% saying they’ve hesitated because they don’t have a good understanding of how to use it to reach potential customers.

With nearly a third of local merchants concerned about the high cost of marketing in the next year, it’s no wonder they prefer to use channels that deliver what they most need: new customers.

Sincerely,

The MerchantCircle Team

Can Group Deals Work for Sole Proprietor Businesses?

Small businesses such as restaurants, salons, auto repair shops, and fitness centers are becoming adept at using daily deals from services such as Groupon, LivingSocial, and Facebook Deals to attract new customers, but what about sole proprietors?



According to our most recent quarterly Merchant Confidence Index survey of nearly 5,000 local business owners across the U.S., only 8% of companies with less than five employees had tried offering a daily deal.



While group deals can work for sole proprietors, it just takes a bit of legwork and a clear understanding of the risks involved. Though the costs of doing a daily can be high – with small business owners turning over up to half of all revenues on already steeply-discounted deals to Groupon or another provider – the results can be worth it, if you manage the deal correctly. Some 77% of small business owners who’ve done daily deals said they’d be likely to do another – citing things like effective customer acquisition and profitability as benefits.



One MerchantCircle sole proprietor who successfully used Groupon to build his business is SchaOn Blodgett of Psinergy, a self-proclaimed “Tech Warrior” who offers computer diagnostics, repair, and upkeep in the St. Paul, Minnesota area. He offered a $99 system optimization and cleaning for $49 on Groupon and sold 50 of them in one day. But the best news was, of those 50 buyers, 37 redeemed the coupon and 12 became repeat customers. So many of the customers were happy with the service that Psingergy believes 95% of the Groupon buyers will eventually return for more services.



Why did Psingergy’s offer work so well? The bottom line is that he used Groupon to get them in the door, but then wowed them with customer service once they redeemed.



“I wasn’t that surprised that the Groupon customers came back, because I pride myself on fantastic customer service, guaranteed work, and reasonable pricing,” said Blodgett. “I treat all of my customers like human beings and answer any questions - even ones like ‘how do I turn on my computer’ – without making the person feel stupid or that it is beneath me.”



Sole proprietors that want to offer a group deal should think before they leap – because a deal done badly can cost owners a fortune without bringing in high-quality customers. Here are some tips from Mashable to get sole proprietors started with daily deals.



1. Shop around.



Groupon and LivingSocial may be the most well-known daily deal sites, but there are now a wide range to choose from. Yelp, Facebook, and Google have all tossed their hat in the ring, as most daily newspapers. Now there are also many vertical and niche deals sites focused on certain sectors, such as Daily Gourmet for foodies, Yuupon and TripAlertz for travel, and even a deal site for dog owners: Doggyloot. There are also business-to-business deal sites like RapidBuyr. These niche daily deal sites are often the right choice for sole proprietors because they reach a targeted audience interested in particular products or services instead of just “everyone in the local area.”



2. Set time parameters.



With most group deal services, you won't have much control over when your deal hits, and this can make it tough for sole proprietors to manage a sudden surge in demand. This is a big problem for “one-person shops” as your time is your most precious resource. Taking on too many new customers or clients all at once could leave you overwhelmed and lead to unhappy customers and bad reviews. The way to solve this problem is to put time constraints on your deal when possible – spelling out a fairly short time period during which the deal can be redeemed. You can also set up your deal so the value of the discount is greater on your slowest days or during off-peak times. If your business has significant seasonality, try running deals during your slowest months.



3. Understand the costs.



Group deals don't always result in an immediate profit – and may even result in a net loss to the business.



To do the math on what a Group deal will cost you, here’s the basic formula. People only buy group deals offered at a steep discount to the regular price – let's say somewhere around 50 percent off. You then need to share revenue from the deal with your service provider, at rates as high as 50 percent or more. So if you’re offering a $200 interior design consultation for $100, and you have to pay $50 of that to your service provider, you'll end up with $50 for your $200 service. If it costs you more than $50 to provide the service, you'll lose money on the deal. In fact, the better the deal does, the more it will cost you.



Still, since your company's name gets in front of thousands of local consumers and you hopefully acquire many new repeat customers, a daily deal can be well worth the immediate “loss”.



4. Make the most of each customer visit.



According to recent Rice University study, less than 20 percent of group buyers return again to make a full-price purchase. To improve these odds, most of each new customer visit by turning on the customer service charm, offering add-ons, and giving them a reason to come back. Think about potential up-sells for people who redeem your coupon. A party planner could offer customers a $10 giftcard to an online party supply store, or a personal fitness coach could offer a discount for new patrons who book a series of sessions.



And don’t forget to stay in touch with your new customers. Ask for their email address and/or encourage people to leave reviews of your service on Yelp, MerchantCircle, and other local sites. You could also remind people to follow you on Facebook or Twitter.



As a sole proprietor, you are a one-person band. But that doesn’t mean you can’t benefit from the same group deal services that larger businesses – and even national brands – use regularly to acquire new customers. Just play it safe and set up guidelines ahead of your offer, and this could be your chance to build your customer base.

Local Business Merchants Warming up to Daily Deals

Daily deals on the rise?



Small business owners are definitely interested in trying “daily deals”, but few have actually taken the plunge. Despite a plethora of daily deals services, from the big pure-play companies Groupon and LivingSocial, to Facebook Deals, Google Offers, and dozens of other local alternatives, only 9% of small business owners have offered a daily deal via one of these services. This finding is part of the most recent quarterly Merchant Confidence Index survey of nearly 5,000 local business owners across the U.S., published by MerchantCircle.



However, merchants are warming up to the idea of using daily deals on a repeat basis – provided they find the right partners to make these offers effective. According to the Merchant Confidence Index, 77% of merchants who have tried daily deals said they would be willing to offer another daily deal in the future. Just three months earlier, only 50% of merchants who had tried deals said they wanted to offer another one.



This rise in “deal confidence” shows that merchants are becoming savvier with daily deal offerings – finding the right products, price points, and offers to acquire customers at an acceptable cost. Of those merchants willing to offer another deal, 58% cited effective customer acquisition as the reason to try again, while 30% said a favorable deal structure was the reason. Just 24% said profitability was a driver in offering a repeat deal.



Unfortunately, many merchants continue to be disappointed with the results of the daily deal offerings. Among those who wouldn't offer another daily deal, 42% said that it was not effective in customer acquisition, 25% said it was too costly, and 24% said they lost money.  Due to the high costs associated with daily deals via big sites like Groupon and Living Social (which take upwards of 50% of all proceeds on already discounted sales) many merchants feel they cannot “afford” to do them.

Even though less than 10% of small businesses have ever offered a daily deal, it’s not for lack of aggressive sales and marketing efforts on the part of big deals sites. More than a third of respondents who offered a daily deal did so after being contacted by a sales rep (34%) or seeing an ad for the service (31%).



Daily deals may feel omnipresent – what with the number of “deals” that land in most peoples’ inboxes daily and the recent news of Groupon’s proposed mega-IPO topping headlines – but the reality is only 9% of merchants have ever offered one. That may change as more competitively-priced deals partners enter the space. New offerings from Google and Facebook are catching on quickly with small business owners and may take a bite out of Groupon and LivingSocial’s businesses.



The Merchant Confidence Index shows that 52% of small business owners are considering using either Facebook Deals and Google Offers, citing their familiarity with these two mega-brands as the main incentive to choose them over competitors. Other reasons for choosing Facebook Deals include larger audience size (26%) and better local targeting (21%) compared to Groupon, LivingSocial, and other pure-play daily deal competitors. Those merchants likely to use Google Offers cited larger audience size (42%) and Google's brand reputation (34%) as top reasons for preferring Google.



Whether you run a hair salon, a dog walking service, a restaurant, a gym, or any other small business,  the reality is most merchants are working with very small marketing budgets. Daily deals may get new customers in the door, but at what price? With consumers reaching daily-deal overload, many people use the coupons to visit a business one time, then move onto another offer – never becoming a regular customer.



The draw to try Facebook Deals and Google Offers is not at all surprising. Because many merchants already buy Google ads and use Facebook, testing the daily deal waters with these familiar giants seems like, familiar one-stop shopping for what could otherwise feel like a risky expenditure of limited marketing resources.



However, unless Facebook Deals and Google Offers address some of the lingering concerns merchants have about daily deal services – high costs and few repeat customers – merchants may use them a few times, but not return. After all, small business owners are driven by one goal: grow their businesses profitably and sustainably. They don’t have time for gimmick marketing that doesn’t deliver.