local media insider
Case study

Good results for Alt-weekly certificate stores Kostizi and MercPerks

Alisa Cromer
The Big Deal can be set up to "tip" or just run as a "last chance" daily deal program.
The latest version of Kostizi's site rotates promotions in the hero position.
Stranger things have happened: The MercPerks coupon store created by the Portland Mercury.
Crispy Kreme or Kostizi? The white label option can improve on this design.
The store platform, rebranded as Altperks, is available to media partners.

Halfoffdeals and HalfOffdepot are both nationally branded companies that offer merchants advertising trade in return for gift certificates sold in an online store.  However,  here are two altenratives for smaller newspapers: Altperks, created by The Portland Mercury, and Kostizi, created by Salt Lake Weekly. Both certificates stores that have been successful, and are offered on a DMA-exclusive, white label basis to affiliates. Here's a look at their stores, first year revenues, and how they compare.

Market: Portland, Oregon

Certificate Store brand: MerkPerks (renamed AltPerks in its syndicated version)

Media: Portland Mercury, an alternative weekly newspaper
Site: Portlandmercury.com
Traffic: 175,000 UV's (Quantast)
Owner: The Stranger
Partnership opportunity: Yes
Key executives: Rob Crocker, Publisher, Portland Mercury; Pete Schwab, CEO, AltPerks, LLC

In April, 2009, as the
economy sank into decline, Portland Mercury Publisher Rob Crocker decided to sell merchandise directly to readers. He says his inspiration came from a typical paradox: Even though the media's website had larger audiences than print, it was harder to monetize. 

"Advertisers were crying they had no cash," he says. The Mercury is also the second alternative weekly in the market, splitting the advertising base with the larger, Willamette Week. Banner ads were not paying the bills.

"CPM's were falling. Groupon had just shown up. National CPM's were too small and banner ads were hard to sell locally," he says.  

"So we shifted our philosophy about the web to try to get revenue directly from our readership intead of through advertising." 

Strategy:  The idea was simple:  Sell merchandise acquired from local merchants in return for advertising trade. The certificates were generally priced at 50% off retail.

"They give us $1000 in certificates, we give them $1000 in advertising trade," Crocker says. However, pricing ads and managing the redemption process was trickier.

The trade rate card is priced well above  the regular card so that in the end, yields on both services are the same.

"Roughly we double the target yield (on the trade card), or about 40% off open rate."  Because the target yield is so much higher,  the return from selling certificates is equivalent, dollar-for-dollar,  to the return from print advertisers. 

The concept was an immediate success.

"We thought we could sell 50 certificates in the first week. In two days we sold 500 and made $6000. In the first two weeks we topped $12,000 in cash sales." 

Now the store has 15 on-going offerings, has been expanded to Seattle under the new brand "StrangerMart."  The lesson learned in the Seattle store is that key to success is keeping enough inventory in the store, the initial surprise over another immediate sell-out meant an empty store while restocking - and recovery for the brand. 

A "Pick of the Week" is also promoted at the top of the store (unlike Groupon-style products, this deal is not crowd-sourced) and in a weekly e-mail blast.

"Our philosophy is not (a group deal) at all. We have a deal store. We feature a deal and send out a weekly email. But we don't time the release of inventory." The e-mail list is 4000 in Portland and 8000 in Seattle, with the capability of selling out a $6000 to $7000 trade deal in a day. To keep the store fresh, they rotate the deal of the week at the top of the site - if it doesn't sell it's switched.

The top merchant category, in terms of number of certificates sold, for both MercPerks and Strangermart is restaurants, with high end restaurants having the most demand. The next best-selling category is retail, especially outdoor stores selling items like  skis and bikes "probably because we are in Portland," Crocker says.

In the service categories,  yoga classes, hair salons and beauty salons have sold well.  Also theaters and other companies, which, like Groupon clients, have excess capacity to hand-out in trade and make good potential store partners.

The redemption process is also a key issue. Merchants can choose between two redemption options: for customers to print certificates at home (faster and easier for customers, but prone to fraud) or to recieve certificates in hard copy by snail mail. Most merchants have opted to send hard certificates by snail mail, with the Mercury managing back-end fullfillment. Crocker says his company is on the verge of acquiring a mobile solution that is superior to both of these options.

Rebranded as a separate company, AltPerks.com, the store's platform is now available to affiliate partners around the country. Their first partner, The Source, in Bend, Oregon, population 80,000, makes about $500 a week in sales. "As a percentage of overall revenue it is probalby more than we do," Crocker says.  

Results: The biggest single day for MercPerks was $7000 cash, from a $15,000 advertising trade (remember, since trades are at double the target yield, this is not discounted advertising).  The average sales over a two year span is $3500 cash in-the-door per week.

One great by-product of the launching the store is the ability to wipe-out bad debt from long term advertisers. The Mercury asked one loyal, but no-pay advertiser to "give us double the bad debt in trade and sold it out in two weeks. That advertiser is now back running and giving usadditional trade to sell." 

Altperks  affliate partnerships are on an exclusive by DMA basis; Altperks runs the backend full-fillment and customer service, keeping 15% of mailed-coupon revenue and 9% of home-printed sales.   

Certificate store brand: Kostizi, LLC

Media Company: Salt Lake City Weekly

Media site: Cityweekly.net

Traffic: 65,000 UV's (Quantcast)

Owner: John Saltas, founder and publisher

Key executives: John Saltas, publisher, Salt Lake City Weekly; Pete Saltas, manager, Kostizi, LLC

Partnership opportunity: Yes

Summary: Like Altperks, Kostizi is a deal store that sells mostly 50%-off certificates (they are not married to the 50% off brand and some discounts are more or less) which can be printed at home, with the twist that they can also be redeemed using a magnetic stripe card. A new daily deal, "The Big Deal" has been integrated into the platform.

Like AltPerks, Kostizi also offers white label partnerships, with the discount card created as the key differentiator.

"The end game will be how we redeem," says John Saltas publisher of the Salt Lake City Weekly.

"No one can steal (the card) because they don't know where you have value stored." 

 At the Salt Lake City Weekly, almost every advertising sales contract has a Kostizi addition to it that is a trade-only upsell. Advertisers trade primarily for digital products and services, including email updates, newsletters, banner ads, text messages; part of any print buy must paid in cash. 

Typically trades are at two-times the open rate so certificate sales achieve the same revenues that would have been collected in cash from the amount of advertising traded.

Instead of a "Pick of the week" promotion backed up with a weekly e-blast, Kostizi just launched the "Daily Dora," a daily e-newsletter that gives additional discounts via promo code on items in the store. Saltas says the newsletter has a downtown brand, and features groups of related discounts (dinner and a play) aimed at urban consumers.

The Daily Dora co-exists with a daily deal, "The Big Deal," that launched last week with a month and a half of merchant deals "pre-sold."  Both programs have separate daily e-mail blasts with separate lists; but "The Big Deal" is promoted on the store. Since some mainstream customers in Salt Lake City don't want to run advertising in an alternative brand, the daily deal format provides an alternative.

A white label version of  the CityWeekly store, powered by Kostizi is under-contruction.  Affiliate partners include the alt-weekly  "News&Review" brand in Sacremento, Chico and Reno (signed up last week); and weekly sites in Misoula, Montana and in Michigan.

 Saltas says the store generated $145,000 in new revenues in the last nine months "without printing a page of advertising."   1000 regular users make the bulk of store sales, via multiple purchases. All total there are roughly about 2,300 people who registered as users. He claims store growth was  22% average month-over-month revenue in 2010. 

The Daily Dora and The Big Deal have separately e-mail lists; with the latter roughly 20,000 competing against Groupon's 300,000 plus e-mails in the area. Saltas contends that small businesses like the more manageable numbers and higher end clientele that his readership provides.

The store's discount card has strengths and drawbacks: City Weekly has 190 vendors in their store but only 35 are signed up on to redeem certificates via the card.

For the customer, "if you have a card you don't have to wait for the mail to come, or mess with printing at home," Saltas said. Still, he admits it is a tedious process getting merchandisers set up to accept the card which has to integrate with the point of sale system. A network of small card scanners has been distributed at the merchant level.  Print at home gift certificates already come with a unique QR code, so merchants can call and/or type them in, easy for the merchant - less so for the customer.

Regarding mobile swipe codes, Saltas says he knows it coming, and will "be ready for it when it happens."  

Our take: 
 Certificate stores are a viable part of the mix of deal programs for local media sites with a numerically strong base of local merchants. As one operator puts it, "this is an inventory based business." 

We like how stores leverage strengths to keep and grow the advertising base, since most contracts programs can be increased via trade, to keep the store stocked and produce incremental revenues. Group-sourced deals, in contrast, do not combine well with other advertising programs.  

The immediate success of these stores also shows the validity and and importance of selling directly to consumers  as a basic revenue stream; selling certificates yields as much revenue as advertising and is easier. 

A key advantage over Halfoffdeals and Halfoffdepot is the white label opportunity and ability to change offers above and below 50% to respond to the market; but then, of course, these new brands need to be built from scratch. 

Another aspect to think through is how certificate stories integrate with other deal programs.  The behavior of a certificate store buyer (habitual, repeat buys) is different from a group deal buyer (waiting for the big deal on something they like), so there is no reason why both programs cannot be operated simultaneously, as is being done on Cityweekly.net today with the Daily Dora and The Big Deal.. LocalThunder  also has a "shopping mall" platform that incorporates certificate sales and a group deal. 

Keep in mind the danger of e-mail burn-out from consumers, and that only one "Pick of the Week"  or "The Big Deal" daily can be heavily promoted on the front of the core site. In other words, the top deal is either a promotion of something in the store that is actually on-going, or a timed, sales event.

In the future, we expect most local media will be running a few different kinds of deal/coupon programs that take advantage of different customer preferences: e-commerce stores with ongoing offers, simple dollars-off coupons, last-chance coupons,  and crowd-sourced sales. Mobile is also a key factor, since locational coupons may trump anything else for some consumers.

Looking at these two platforms, the discount card is a nice feature, but, we think, will be less relevant as mobile POS gets solved - a number of good solutions are just around the corner. Redemption is critical so guessing which company will have the best future strategy may be a deal-maker or breaker.  We like the fact that CityWeekly.net is already working with a network of merchants at the POS level, though not all media companies may be willing to invest that much in their customer's businesses.

Second, there is the interface. AltPerks seems designed for a smaller number of stores promoted more heavily and less dependent on navigation. It has a stronger "50% off brand," and  more information about each merchant displayed. It's simple.

Kostizi's retro interface, (the original brand reminded one company executive of Krispy Creme) will be white-labeled so that's not really an issue. The latest version has a redesigned home page that features rotating promotions (including the Group Deal) in the hero position.  The store 's channel pages still retain awkwardly wasted space, however,  and stodgy buttonology like "Please log-in to make a purchase" instead of "add to cart.") Their new "TheBigDeal" on Cityweekly.net looks very slick and hopefully is a sign of better design to come. 

If you compare revenues,  both stores seem to be doing equally well, even though MercPerks has a significantly smaller inventory.  The key factor in success is probably the effort the company puts behind these deal programs, in addition to traffic. Hence, Portland does more revenue than Seattle, for example, which has more traffic but is newer and arguably in a more competitive market with other priorities.

Alisa Cromer

The author, Alisa Cromer is publisher of a variety of online media, including LocalMediaInsider and  MediaExecsTech,  developed while on a fellowship with the Reynolds Journalism Institute and which has evolved into a leading marketing company for media technology start-ups. In 2017 she founded Worldstir.com, an online magazine,  to showcases perspectives from around the  world on new topic each month, translated from and to the top five languages in the world.

salt lake city weekly, saltas, certificate stores, coupons, group deals, groupon, stranger, portland mercury, mercperks, strangermart, kostizi