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Des Moines welcomes third-party coupon providers


Last year, All Play owner Eric Hatfield decided to promote gift cards for the holiday season, but he sold fewer than 100.

This year, the restaurant and arcade decided to go with a deal from third-party coupon provider Groupon Inc. It sold 1,115 coupons, each good for $25 worth of game tokens at a price of just $10.

“It’s certainly a different type of advertising,’ Hatfield said. “It seemed to make a lot of sense. I think we’re going to get a higher penetration for people looking for those types of things.”

Third-party online coupon providers such as Groupon, LivingSocial Inc. and Travelzoo Inc.’s Local Deals have grabbed the attention of local businesses and consumers since entering the Central Iowa market in the past year.

The concept is that the coupon provider will work out a deal to sell a service for typically 50 percent off or more through a local business. There are different wrinkles depending on the provider, but the goal is to get consumers to purchase the coupons and share the deals with their friends via e-mail, Facebook, Twitter or smart phone, and the provider takes a cut of the price. Anyone can sign up to be a subscriber for free for the services.

Since launching in Des Moines in October, Groupon has sold more than 18,000 coupons and boasts $1.2 million worth of savings to customers. Travelzoo Local Deals launched in Des Moines in July and has 40,000 local subscribers. LivingSocial just launched in December and has produced more than $203,000 in savings for customers so far.

“This is a new way of doing business,” said Michael Stitt, vice president and general manager of Travelzoo Local Deals and an Iowa State University graduate based in Chicago. “I think since the Internet started, local businesses struggled with ‘How do I understand Internet advertising? How do I make sure there is a legitimate performance behind it?’”

Third-party providers sell the idea of immediate and measurable advertising and an opportunity to build exposure to customers who wouldn’t otherwise have gone to the business.

They also sell the idea of giving customers perks to share the deal, something traditional coupons don’t do.

Groupon encourages customers to share by requiring a “tipping point,” meaning the deal has to sell a pre-determined number of coupons before becoming valid. LivingSocial has no tipping point, but gives discounts for customers who share the deal with friends.

“I think there’s a need for people to connect with their friends and bond over things that they like to do,” said Groupon Marketing and Communications Manager Julie Mossler, from the company’s headquarters in Chicago. “The desire to connect with your friends and the desire to save money is a really powerful thing.”

It worked for Fong’s Pizza, which sold 1,044 coupons for half off of a $40 food and drink bill in December. General Manager Gwen Page was approached by LivingSocial to run a deal, and thought it would be a good opportunity to thank current customers during the holiday season as well as attract new patrons.

“We’ve been having quite a few people come in who said they had never heard of the place before and said they were curious, once they saw the special,” Page said. “We were definitely surprised and quite impressed that we sold so many of them.”

Same service, different methods

Groupon, LivingSocial and Travelzoo Local Deals all offer similar discounts, but have different methods of partnering with businesses.

Groupon chooses the businesses it partners with based on customer feedback and online reviews, Mossler said, and the site turns down about seven businesses for every one it chooses to feature.

“That’s because we don’t want to choose just the average corner deli,” she said. “We want to work with the best deli in all of Iowa.”

Travelzoo uses a similar approach for an audience that is 80 percent over the age of 35 and about two-thirds female. The company only does one or two deals per week in Des Moines.

LivingSocial actually hires local salespeople for each market, and tries to find a deal for anyone who wants to run one.

“I think it’s a testament where we’re pretty creative, so we do our best to find something with each merchant,” LivingSocial Director of Communications Maire Griffin said from her office in Washington D.C.

All three stressed the importance of featuring a variety of services to make customers anticipate what the next deal is going to be.

What’s the bottom line?

The main goal for a business using a third-party provider isn’t necessarily to make money in the short term, but to gain exposure, Mossler from Groupon said.

“We never positioned Groupon as a fast way to make money (for businesses),” she said.

Still, LivingSocial’s Griffin said businesses should look at this as “a great opportunity to help their bottom line.” She used the example of a bed-and-breakfast inn in a Washington, D.C., suburb that sold more than 700 packages during a period in which it was struggling.

For Fong’s Pizza, Page said she found LivingSocial advantageous for attracting new customers, but not for making money in the short term.

“I don’t think it’s really the best deal for the business owners as far as trying to make money,” Page said, noting that LivingSocial took 50 percent of the revenue from coupons sold. “It’s not the best financial decision right off the bat, because of half the discount you are taking off. But as far as attracting new customers and everything, I think it’s worth it for sure.”

It could be a matter of timing. All Play owner Hatfield said he felt that his business made more than it would have otherwise made just from the people the Groupon deal will bring through the door. He also felt good about getting paid up front for business that would happen incrementally throughout the year.

Page said if she did another LivingSocial deal, she would pick a slower time of year than the holidays and try to negotiate a shorter time span than the current six months on the deal.

“I had never even really heard of those type of services. I wasn’t even familiar with it,” Page said. “I was kind of going into this a little blind. Now I know and see the potential of what I could do.”

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