Groupon is making billions…so why aren’t you?—Part III. Revenue sharing programs for radio stations enjoy remarkable success because of this simple idea: folks love great deals and they love to share them with their friends. In the first part of this series, I discussed the large financial opportunity for stations to launch their own “Groupon” style Revenue Sharing Program on the Radio. In Part 2, you would have discovered how to overcome the multitude of sticky issues associated with operating these programs. Now in this third of the series, I present the top ten considerations we suggest to our clients to help ensure their clients have a successful promotion. Similar to the adage: “happy wife… happy life”; If your clients aren’t successful, there’s little chance for your program to grow through repeat business.
1. The Right Amount of Business – Some Revenue Sharing Programs require businesses can specify a minimum threshold of customers required for the offer – but they often cannot specify a maximum number of respondents. This creates fear in the client that there might be 1,000 takers of this particular deal. And most small businesses aren’t prepared for that many new customers. So at the beginning of a Program our company advises stations to omit both tipping points and limits.
2. Covering Variable Costs – Does this promotion’s discount pricing allow your client to cover their variable costs, including the cost of the product, royalties and fulfillment? If not, what other value does this promotion bring (i.e. new customers, better image, radio station mentions, etc?) that your client really needs?
3. Products That Requires Refills – Can the promotion give customers a product that requires purchasing other products and/or services? We like to think in terms of giving away the razor to sell blades or phones to sell mobile airtime.
4. Utilizing Quiet Business Periods – Can you time the promotion to drive sales during otherwise low sales periods? This works well for businesses with high fixed costs since it helps to smooth the sales curve and helps them utilize spare capacity that would otherwise be wasted.
5. Brand Dilution – The huge price cuts that are required to be featured on daily deal sites might be perceived as damaging a brand’s image, especially brands that are associated with higher quality products and services. But that doesn’t happen because your goal is to build your client’s brand, not cheapen it; the exclusivity and scarcity of your deal for one or two days makes it more valuable to a targeted audience. In reality, your client’s brand value and price reference will be defined more by the consumer’s experience, perception of quality, and the competition in your market—not from a discounted promotion.
6. Employee Morale – Restaurant employees have complained that daily deal customers tip very little because they’re trying to squeeze the most out of a deal. A possible solution: it costs $10 for a certificate getting $20 off a meal, but you have to spend at least $40 for it to work in the first place, and a suitable tip percentage is applied automatically.
7. Sampling and Lower Profits – Retailers honestly have no solution to the new “don’t buy retail” culture because the cat is already out of the bag. Although certain types of business can maintain a service proposition – medical, legal, professional – that are harder to be commoditized, retailers are now in conflict with their most cherished mantra – ”never compete on price”. But they don’t have to. Companies sample their products all the time without compromising their brand. If you were in Costco and they were giving out samples of Coca-Cola does that reduce your opinion of Coke? Building sustainable partnerships with low-margin small businesses is hard; it involves some level of shared risk, with pricing based on long-term profits rather than short-term revenues.
8. The Need for Other Marketing – One great campaign doesn’t make a marketing plan. In spite of what Groupon tells its clients, on-going marketing and messaging is needed to get consumers to come back and purchase again. For this reason again, retailers should include a radio campaign to keep the message alive.
9. Customer Alienations – Many merchants who’ve signed on to daily deal sites restrict the offer to “new customers only.” That only punishes people who are already making you successful enough that you can reward other peoples who don’t know you and who have never given you a dime. You certainly do not want to alienate a client’s current best customers.
10. Standing Out in the Market – business is built by providing lots of exceptional experiences. Your client has to be the restaurant everyone wants to go to because the food, ambience and service are so great. They must be the spa that gives the very best massage and follows up better than anyone else or the hotel that reclaims the hope and spirit of hospitality that got them to where they are now.
So there you have it. If you have the patience to build this new revenue stream, you will be richly rewarded. It’s not easy of course; that’s why many stations enlist management companies like ours to run their programs for them. But those that are prepared to push through what Seth Godin refers to as “The Dip” will have a leg up on their competitors in the years ahead and a new digital way to meet the ever expanding revenue targets managers are forced to meet.
See Part II here
–Neil Gallagher, a consultant for Radio Management, Programming and Sales, specializes in developing and operating Revenue Sharing Programs for Radio Stations. Neil’s background includes being a successful Divisional Radio Vice President, major market General Manager, Program Director, Account Executive and Revenue Sharing Program Developer and Manager. He can be reached through his website www.neilgallagher.com.
