local media insider
Case study

Omaha exec to Groupon: "We can do it as well or better"

In the hyper-competitive world of the daily deal, reach times deal quality equals cash

Alisa Cromer
Omaha World Herald to Groupon: You've gotten nothing on us.

Site: DailyDealOmaha.com, division of Omaha.com

Company: World Herald Company

Key executive: Pat Lazure, President of World Herald Interactive 

Quick Overview:
 In spite of the recent Groupon/McClatchey deal with the devil, many local media are now choosing a white label approach (Gannet recently launched the Dealchicken.com, which it developed from scratch and LivingSocial has recently  acknowledged the need to offer a white label version). But most have been slow to act on this opportunity, due to the shere number of vendors, the relative complexity of the product and a multitude of priorities. We think this is a missed opportunity. 

Six months after Groupon invaded Omaha, Nebraska, the locally-based World Herald Company responded in kind. On July 22,  the  World-Herald launched dailydealomaha.com, becoming the third daily deal provider in a city with a population of 880,000 (Living Social also a sales representative in the market).

Pat Lazure, president of World Herald Interactive, says the goal is not just to "play too" but to use its inherent advantages to do as well or better than Groupon in Omaha.

“You can think about it a number of different ways, but if they are new to the market, then shouldn't we at least be able to match that (revenue level)?” says Lazure,  who orchestrated the launch. Lazure, whose background is in pureplays, sees the local media company as having significant advantages.

With 36 “daily deals” under their belt, the site is peforming well - averaging $3000 a day in gross sales and growing, putting the starting point for annual revenues at about $200,000 to $400,000.  Growth however, is a function of email mass, and the email list has also increased by 30% since the program began. The ultimate revenue potential should be much higher.

Lazure says the program has a track record of doing “as good or better” than Groupon when the same deals are launched, even with a smaller email list, because of the promotional breadth of the legacy print/online brand. Here are some basic components - and insights -  he agreed to share from from the launch strategy:

1. Naming the site
Lazure says there is a trade-off between an SEO friendly name like DailyDealOmaha.com,  which contains key search terms,  and a location agnostic brand (such as Gannett’s DealChicken) that works as a brand across a variety of markets. He points out that Groupon creates a buzz without a location centric brand, as have knock-offs like Morgan’s deal and Lucy’s deal (partners with Deal Current). Ultimately World Herald still chose to go with the location-based brand, however. (We advice thinking up something catchy unless your market is very limited). 

2. Sizing up - and differentiating from - the daily coupon competition
Lazure tracks Groupon and Living Social carefully in his market. His company;s advantages include greater promotional opportunities offered by the newspaper and Omaha.com, the newspaper's web site. In addition, the company has a larger number of "feet on the street." 

“What differentiates us...in addition (to potentially different demographics) is that we are offering the advertiser something more. We have an email list, but we also feature the (deal of the day) in the upper right hand corner of every Omaha.com page, which is approximately 500,000 page views a day. In addition to that they get a full color ad on the back of our Living section, just below the television listings. About $7000 worth of extra advertising ( they don’t pay extra for) is part of the package.”

So far, Lazure says that the same deals are performing as well as they did in Groupon's program, even though Groupon uses a  larger mailing list; Groupon is up to an estimated 50,000 email "opt'ins"  while DailyDealOmaha is at 31,000. Both competitors are rapidly growing their email lists, so its a matter of Groupon's head start and national buzz versus Omaha's promotional advantages (deal quality is a key element, we'll get to later).

Similar to Groupon and Living Social, DailyDealOmaha.com keeps about 40% to 50% of the gross deal proceeds. Lazure, like most experts in the space is assuming that this percentage will eventually be compressed, that is Groupon will keep less and advertiser more and more as time goes on (we've seen evidence of this in other more competitive markets). 

Theoretically, the newspaper's  larger sales force and customer base is an additional advantage. In Omaha, Living Social has one person on the street (and has been known to assertively recruit newspaper sales representatives) while Groupon is still working from a Chicago call-center (Groupon has feet on the street in about 50% of markets and hasn't gotten to Omaha yet).

To capitalize on its sales force advantage, sales of DailydealOmaha.com were opened up to half of the Omaha World-Herald sales team, putting more "feet on the street" and enabling the deals to ramp up quickly with just eight prelaunch sign-ups. In retrospect, however, Lazure says that more sellers has its advantages and disadvantages that any publisher should consider. The pro is that a professional sales team has relationships in place, cons are that sales representatives tend to target existing rather than new businesses, missing a key opportunity in the market. About 80% of Groupon’s advertisers are not existing newspaper customers.

“This is a product that represents an incredible opportunity to establish new relationships with new clients, and create  organic growth,” Lazure says. "The trouble is that sales force goes after low hanging fruit – ie existing customers. We have to remember that the sales person has a briefcase with 20 or 30 things to sell."

There is another more significant downside to multiple sellers: Deal quality, Groupon’s greatest strength, is uneven when a more sellers are handling the deals. Note: DailyCurrent’s best practices include a separate sales representative for the “deal”, who splits commissions with existing sales representatives; we recommend making this decision early on to avoid creating sensitivities.

3. Deal quality x Reach = Cash

Lazure boils the Daily Deal equation to the following simple calculus: Deal quality x Reach = Cash. If you are going to take one thing away from this case study, it is this metric!

So the top priority - especially in the first few months - is growing the email base rather than just making money right away. DailyDealOmaha started at about 20,000 email names  (10,000 is generally considered a minimum starting point) and quickly added another 10,000. 

One of the ways to do increase reach is simply to promote great deals.

"Deal quality should be a given, but its much easier said than done. As you expand the number of people who sell the deal, quality is at risk, but can still be managed so as long there’s some consistency in screening prospective deals." Lazure states. Groupon's biggest strength is they know what composes a "good deal."  

"It is very impressive (since) they are doing this from a call center in Chicago." Lazure says.

But even Groupon doesn't always cash in. Just last week was Groupon's first Omaha deal that did not reach their tipping point, Lazure says.

"It was for discount laundry, $57 worth of laundry for $25. They sold 11 and the tipping point was 30. Why didn’t that do well? Its just deal quality. If deal quality is zero and reach is 100, deal quality x reach equals zero cash that day."

So if that is the equation - and it is - what exactly what is deal quality? Here are the components Lazure looks for:

• Mass appeal. Most people eat and consume entertainment, and women go to salons, so these are good candidates. “ Offer things that have mass appeal, that are "buzz-worthy"  and that help expand the reach. 

• Choice. "If a business has multiple locations that tremendously improves the quality factor".

• "Good" companies. “We look for Omaha staples," our "ten tips" also includes looking through Yelp reviews. 

• High revenue with high demand can out-perform general demand goods and services (like restaurants) with lower price points.

 Lazure pointed out that Groupon in Omaha on July 16 did a deal for hair removal, which is most successful in its history in the city, netting far more than the much publicized Gap campaign. According to his analysis, locally Groupon sold 1,249 hair removal vouchers at $99 each, just shy of $125,000. The next most successful day was the  2,396 GAP vouchers that sold for $25 each, or nearly $60,000. So the number of vouchers is not necessarily the most successful.

What are results so far? The average number of vouchers, 125 per deal for the last 15 deals has grown 50% since the first 15 deals. “We are not declaring victory yet but we are finding our sea legs.”

The email list, which started at 21,000, is now just under 30,000. One of the metrics supplied by  Deal Current (see the top ten on this site) is that the average expected revenue per opt-in email is per deal event is about 10 to 15 cents per email per deal event, on a grosse base. So with 30,000 email opt-ins  Lazure expects to (and is) grossing an average of nearly $3000 per deal, or about $1350 a day net revenue.

At this level his group is on track to earn $200,000 to $400,000 in its first year (considering the program sells about 220 days a year, excluding weekends). But Lazure is not content as long as Groupon is still ahead in Omaha.

"Groupon has an estimated 50,000 emails or averaging over $5000 per deal," (he has calculated it out at about $7261, including the two hyper-performing deals, Gap and the hair removal discount) with a six month head start in the market. "The head start is to some degree equalized by the additional promotions" on Omaha.com and the Omaha World-Herald.

Lessons learned

1. “We can do this...as well or better than Groupon”
“When we run the same deals as the competition, we get the same results or better: the same restaurant, the same riverboat cruise. We are getting the same result, and we are getting them in our infancy.  Groupon ran the deal in month four or five and  their email database was larger. I suspect, based on our analysis, that (with promotions) our reach is the same as theirs."

"I just think that it would be irresponsible not to know what they (Groupon and Living Social) are doing... It would be hard for me to put my head in the sand and say , I don’t care what they are doing what their results are, when I know we can do better."

2. Bargain hunters are shopping all the deals
“What I suspected and what seems to be confirmed is that bargain hunters are transient they will go to the bottem of the river to find a good deal, yet they still are capable of falling in love with the advertiser” but are not loyal to the coupon service. So the role of aggregators may become more important.

“What I think is the magic and driving force of the bargain hunter is the hunt. They are not going to ignore Groupon because they found DailyDealOmaha or vice-versa; they are going to hunt to find the deal that fits them best. I think some of the aggregators are going to gain traction.  It’s a more efficient discovery process for bargain-hunters.”

Lazure says some aggregators are trying to charge, but doubts that will stick. On the other hand, he personally contacted Yippit to get into the aggregator's listings.

“I doubt there’s more than 50 people in Omaha who know what Yippit is, they are only in top 8 cities; but I now see their value."

3. Deal quality is king
Controling deal quality is probably the number one factor in competing with Groupon successfully.

"Some days we are hit and miss on deal quality and we need to be more consistent. So coming full circle, the question is how do you leverage the broader, existing sales team? Regardless, it is important that a publisher manages its sales force to ensure that deal quality is never compromised."

4. The future will be more congested and targeted
Lazure says that because of the low barrier to entry he predicts more competition ahead, followed by more fall-out. Traditional media companies will have clear advantages:

"Groupon and Living social spend an enormous amount of money on advertising. For publishers the marginal cost is lower." More features and targeted deals are part of the roadmap for these companies. Media companies can get ahead of the game by offering customer loyalty programs that capture the "second opt-in" in their initial sale. Typically Groupon will not release the email addresses of people who buy vouchers. Media partners occasionally break this rule, but the real need is for pre-designed additional opt-in programs that allow advertisers to more easily capture the email addresses of people who utilized the program.

Note: A huge debt of gratitude to Pat Lazure, president of World Interactive Group, first for taking on Groupon in Omaha  and second, for sharing his experiences with members of Local Media Insider. He will also be answering your questions about the Daily Deal in the comments area below. 

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.

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