This just in - It's still about relationships

I actually have a few interesting (to me anyway :-)) ideas for blogs backlogged, but because of the pace recently, I have managed to let a couple weeks slip by since our last blog.  So before I get too deep into a week that is overbooked, I will start this week with a blog powered late at night by a little bit of Adele for passion, the Red Hot Chili Peppers for adrenaline and energy, and K-Love for inspiration.  It is almost always this 1-2am, end-of-the-night slot when I find time to write, but usually I wait until the next day to review it myself, usually have someone else review it and then post it.  So if this is littered with typos, my apologies.

So tonight our company, Social eMotion, won a slot in Start-Up Alley at the Raleigh Chamber of Commerce Expo 12 event in downtown Raleigh on May 3, 2012.  Information here: http://www.raleighchamber2.org/bizexpo/index.html .  I am not sure there is that much overlap between people who read this blog and who voted for us, but thank you to everyone who voted for us!   Please stop by and say 'hi' if you will be at the event.

Spots in start-up alley were awarded to top vote getters from online voting at the event web site.  There was not a bunch of complexity to the voting.  People were allowed a total of 3 votes over the 2 weeks (so you could not just have the same people vote over and over) that it was open.  Companies were encouraged to point people to the site to support them.  So what you end up with is a combination of a merit-based competition from people who stop by but also a "who can get the most people to help them" contest.  We finished the contest with 649 votes to top all of the companies competing. 

We would like to think that all of our votes were simply because our product and business are phenomenal.  (Hopefully there were at least some votes for that. :-)) But a large number of those votes came from people helping us.  I personally used a wide range of tools to round up help ranging from digital channels only a couple years old like Twitter, Facebook and Linked In to channels that date back much farther such as chatting with neighbors on the porch or calling relatives at home (not even on a mobile phone sometimes).

For a project like this, the theoretical beauty of digital communication channels like Facebook and Twitter is the ability to make one action and reach a ton of people in one shot.  Some of the help I received did come from generic posts to my broadest of networks online, but along an undeniable trend became very clear.  The closer the relationship and the more direct the communication/request, the greater the probability of receiving help.

Getting someone to support and help you is all about relationships and all about communication.  Generic posts to a huge group of people, even if they are friends or family, is technically communication and it is to people with whom you have a relationship.  But it differs immensely from the intimate communication that is more focused on a specific relationship.  When I posted asking for help in smaller tighter-knit online groups, you could almost see the vote counter move because of it.  When I sent an email to a specific, small group of close friends tied to specific group, I got replies back saying that they had voted and would ask their wife or husband to do the same.  In some cases they even forwarded it to other people. 

In the end, it is all about relationships and meaningful (not generic 1 size fits everyone I know) communication.  In the back of my mind I knew this.  It is obvious.  But I think it can be easily overlooked amongst the growing number of tools available to communicate with and reach people.  As a business, it is definitely easier to do a single daily Twitter, Facebook, etc. post and call it a day for building relationships with your customers.  As the volume of generic communication like this increases, I cannot help but think that people's (including customers obviously) propensity to filter and react to more targeted, meaningful communication will increase further.  Communications channels like Twitter, Facebook, etc. do play a role.  They are inherently relationship-based.  But especially for businesses, the generic one-size-fits all approach to communicating with customers is broken.

This is incredibly good news for independent local businesses.  Relationship-building and direct, intimate communication with customers is an inherent strength of local businesses.  I do not mean to say that large national chains are incapable of building relationships and communicating with customers.  Some very successful large companies have excelled because they are able to do this.  For as many Starbucks as there are throughout the world, your nearby Starbucks can still have the feel of a neighborhood coffee shop with familiar employees who sometimes know what you want to order and an occasional familiar face in line who is on the same schedule.  But local independent businesses have advantages here.  The owners more often than not work at the business, and they are people that you see at the PTA meeting, the grocery store, church, etc.  At the point where independent local businesses can take the face-to-face, person-to-person relationship building that they excel at, transfer these relationships to the digital world and build on them, they gain the upper hand versus large national chains.  The key is to cross the divide to digital without losing the personal relationship-based approach which can be difficult.  For the broad digital channels, the trick is to find ways to target communication to make it useful/meaningful.  

Email mailing lists are a decent example.  No one remembers it, but there was once a time when we opened every email we received.  Now only about a quarter of marketing-based emails are read.  There is still value in targeted emails with meaningful information, and businesses that use segmented/targeted emails are seeing increasing success.  But the big, generic untargeted email is seeing diminishing returns at this point in time.  Same can be said for other forms of digital marketing.  Who even sees banner ads these days? 

It is not about how many times you touch a customer in the marketing-speak that is incorrectly pushed by volume-based marketing programs, but how many times you touch them with something meaningful or useful.  By using old-fashioned tools like real conversations, successful small businesses are very good at this.

So for local independent businesses I think it goes like this:

* DO continue to invest time building relationships.  You have an advantage here over the national chains.  Once customers get to know you, they want to help you, and this often trumps price, how many TV ads they saw and a lot of other things where you could be at a disadvantage.

* DO leverage digital marketing but...

* DO NOT try to compete in the generic mass marketing game.  You cannot compete well here with big national chains, and it is is not very effective anyway.  Instead...

* DO focus your digital marketing on getting meaningful/useful communication to customers by targeting and personalizing it when possible.

For a quick heads up when a new blog is posted, please follow us on Twitter at miPlaces.

Matt Karash (VP, Sales and Marketing @ Social eMotion) mkarash@social-emotion.com

Is Twitter's popularity decreasing its usefulness?

Twitter's rapid rise is not new news.
 
Royal Pingdom reported that tweets increased by 16 times between January 2009 and January 2010, reaching more than 1.2 billion tweets.  (http://mashable.com/2010/02/10/twitter-tweet-volume/) By January 2011, the number had increased to more than 3 billion tweets. Soon thereafter, the huge numbers led to a transition from counting tweets per month to tweets per day. Numbers vary a bit depending on who is reporting them, but Twitter itself reported 200 million tweets per day in June 2011 and then 250 million per day only 4 months later in October 2011. (http://mashable.com/2011/10/17/twitter-costolo-stats/) In the fall of 2011, Twitter also issued stats saying that it had more than 100 million users in the US alone and that more than 50% of these people were daily Twitter users. (http://www.mediabistro.com/alltwitter/twitter-statistics-2012_b18914)

Regardless of whose numbers you use or how you slice and dice them, TWITTER IS HUGE!

All of your customers are there. The tool is pretty easy to use. It's free. And everyone who has anything to do with marketing has been telling you for at least a year now that you MUST do Twitter. (Never mind that it is often unclear what exactly you are supposed to do with it. Just do something - anything - now - Fast! :-))

Many businesses are using Twitter effectively to keep in touch with customers. Regular tweets, if read, are a great way to get quick information to your customers even just to make sure they are thinking about you regularly.

But the key part of the statement above is the "if read" part. As Twitter volume grows at a staggering pace, is it becoming less useful for reaching your customers? On the one hand, more customers are using Twitter regularly, greater than 50% of users checking in at least daily.  They are also following more people/businesses which makes it easier to get on people's follow lists. But the challenge is being heard amongst the increasing volume of tweets.  Not too long ago, if you tweeted something at the beginning of the day, your tweet would be seen by customers who checked Twitter at least until lunchtime or maybe even the entire day. The window of when you needed to tweet to be heard was open for hours.  Because of the increased volume of tweets, they can scroll off people's screens in a matter of minutes. Today, getting tweets on customers’ screens is more like trying to fire a paper airplane into a window that is opening and closing constantly.

So, what should a business to do with Twitter?  Every time a new marketing tool comes along and takes off, there is inevitably that stage where the masses, who are a little late, rush to it. They often do so because they feel like they have to with no real consideration for why or what to use it for. I have read countless articles about business use of Twitter recently. Many talk about things like frequency, consistency, schedules and all of these volume-type ways to make sure you are doing the right thing. If you post on a strategically devised schedule, you can catch many of your customers, even if they are on different Twitter schedules. This scheduling approach to communicating with customers drives the need to say something regardless of if it is useful.  The emphasis on this strategy is making sure you get your tweets on people's screens.

At the point where you start doing Twitter posts because it is time to do a Twitter post with no regard for whether you have something interesting or useful to say you are on the path to becoming useless noise.  Such noise is either subconsciously (just ignore like the ads on web pages) or consciously (stop following) being screened out.  On the surface, Twitter is a new, cool whiz-bang technology. But at its core, it is a marketing tool. The key to marketing is to be interesting, useful or otherwise worthy of a customer’s attention. If you repeatedly post "because it was time to post" quality content, you will become part of the noise and get lost in it.

In the midst of figuring out the scheduling window issue, it is incredibly important not to lose track of the simple importance of communicating with customers in a way that is interesting, useful or otherwise valuable to them.

For a quick heads up when a new blog is posted, please follow us on Twitter at miPlaces.

Matt Karash (VP, Sales and Marketing @ Social eMotion) mkarash@social-emotion.com

An Introduction

I gave Matt a couple extra assignments this week just so he would be too busy to work on the blog, and give me a chance to introduce myself.

Who am I? I am Rob Costello, co-founder and CEO of Social eMotion. I was the kid that instead of watching cartoons, wrote shareware BBS programs even before anyone knew what the Internet was. While my high school friends were bagging groceries, or flipping burgers, I was working as a technician at the local Computerland doing large PC installs for companies like Pfizers Pharmaceuticals. I did my undergraduate in Rochester, New York at Rochester Institute of Technology. Since then I have worked at both small and large companies and across wide variety of technology platforms. After a short stint working for a startup doing console work for EA Sports (bonus points if you can name the three EA Sports titles with my name in the credits), I settled into working in the financial industry where I was a technical leader responsible for developing large business critical applications.

I also have an entrepreneurial core, growing up in a very entrepreneurial family. My father owned a small chain of convenience stores. My mother and he did everything including running the register, cutting the meat, making the prepared foods for the deli, managing the inventory, and keeping the books. Growing up, it was the greatest thing to go to work with him for the day, at least for me. I’m not so sure it worked out well for him. But he never complained, and I have this image of him counting the money in the register drawers burned in my memory. It was like a blur of motion, and he was done. I remember always recounting everything convinced he couldn’t count money that fast, that I would prove him wrong. Never once did I find a mistake, and to this day, I think he could easily beat the automated machines that banks have nowadays.

Social eMotion is not my first startup. Along the path as a technologist and software developer/manager, my entrepreneurial core reared up multiple times. A friend and I started a game company that was going to focus on family fun multiplayer games ten years before Zynga even existed. It seems to be my bane that I’m too early to the market. But our first product was a decent hit, had strong staying power with those who did play it, and to this day has small groups of followers still looking for others to play against. The game was just too early to have mass appeal in the multiplayer Internet game arena. Later, I consulted with another startup to create a social networking site for bands. I had met a co-worker whose brother was the guitarist for a popular metal band, and they wanted to create a site where bands could find and audition other members. While the site hasn’t reached Facebook status, it’s alive and active today, and I continue to play an advisory role.

So now I am at it again. The story of how Social eMotion was born is a good story in itself. I love working for a small company that makes a product that is useful to other small companies. The team is focused, has great chemistry, and has a good vision of where we are headed. Like any small company, we are still navigating the bumps and trying to avoid the pot holes, but each week we get closer to our goals. We have a great tool for both merchants and consumers. We are working on getting the word out about these tools, and refining our offering as we learn more each day.

I probably can’t keep Matt away from the blog two weeks in a row, but from time to time I will find a window where I can share my thoughts on where mobile technology is going, or how technology is making a difference for some merchants.

Daily Deals: The accountant's perspective - Part 2

Crazy busy week last week hence the brief blog hiatus…But first thing Monday morning it’s back to daily deal math…Borrowing my son’s recent catch phrase (including the tone) – “Sorry for your luck.”

For part 1 of this blog, I rounded up and inserted some pop music quotes to give people a reason to keep reading.  This time it’s (scary voice) straight math baby.  We left off with the basic math for correctly determining profit/loss from the initial sale and redemption of a daily deal.  Two additional things have potential to drive value from a daily deal offer.  Both can be significant, so they should not be ignored.

1) Upsell on the original deal.  If you sell a daily deal for $20 value, but customers usually spend $60, the profit for the additional $40 of sales above the deal amount is significant.  These sales usually occur at full price (usually you cannot combine another coupon or offer with a daily deal offer) and are therefore very profitable.  In many cases the profit on the upsell can easily surpass any loss from the initial daily deal sale/redemption.

2) The holy grail of marketing – winning new customers and building your regular customer base.  If from the 40 new customers in the previous blog’s example, 20 fall in love with the restaurant and become weekly customers at regular price (at which you make a profit) whatever amount you might have lost on the initial daily deal will prove insignificant compared to the future value of the 20 new customers.

The first item can be measured reasonably accurately with some work even if it is accomplished by having cashiers jot down upsales on daily deal redemptions.  You would simply take the daily deal redemptions X (Average upsell amount – normal profit percent on sales).

But the second item which is arguably the most important value add of a daily deal offering can be very difficult to track/measure, probably to the benefit of the daily deal providers.  They promise a lot here and realize there is no easy way check that the promises are realized.  Short of having a host/hostess (from the restaurant example)  who works every hour that you are open and can identify first-time customers from the daily deal redeemers and then track how often they come back over the next 6-12 months, how are you going to measure this?

So at the end of all of this miserable algebra and the painful time warp back to the Scantron form for the standardized math test where all of the answers look right, the profitability of a daily deal is correctly answered with bubble E – “Not enough information to solve this problem.”

There is no easy way to measure or even decently estimate two crucial numbers in determining the success of a daily deal:

1) How many of the daily deal sales/redemptions were customers who would have come anyway in which case the net is a loss of the total amount of unnecessary discounts given.

2) How many first-time customers via the daily deal, even if unprofitable, ultimately become regular customers (minus the daily deal discount) and drive a significant profit over the coming months or years as a regular customer?

The key to ultimately answering the “Was this daily deal a positive or negative for my business?” is better tracking of customers.  You need to measure of couple things.  First, you need to be able to measure how many redemptions were from new customers versus regular customers who would have come anyway.  Second, you need the ability to determine which of the new customers came back over the coming months.

In some cases, a merchant may be able to estimate these things by comparing weeks and months following the daily redemptions to months prior or possibly the same month from the previous year.  More exact would be a system that tracked customers and know which of the daily deal customers returned and how often.  It would also give you an idea of how many of the daily deal redemptions were simply loyal customers taking advantage of discounts.

Our miPlaces Merchant Solutions marketing platform can help you measure these math mysteries for daily deals and also also any other offers/coupons.

Daily Deals - The accountant's perspective - Part 1

So this blog started with me fired up about writing an incredibly interesting deep dive into the algebra of Groupon/Daily Deals.  See, I was one of those weird kids who actually enjoyed math class.  Then I asked my wife to proofread it.  First, she looked like she was about to doze off.  Then she came to and pushed forward with a look like she was being tortured.  The net of the humbling conversation that followed was a simple quote: “Normal people don’t really want to go back to the hard part of middle school and early high school math!”  So with the Groupon math being way past the high end of what is stomachable for a casual reading blog, I needed something to make this blog readable even for people who have no desire to relive algebra.  Enter…Pop music!  With 2011 just past and all the yearly radio countdowns still close in the rearview mirror, I figured I would do the impossible and combine Groupon/Daily Deal math with quotes from 2011’s greatest pop songs.  So buried in the math are quotes from some of 2011’s chart-topping pop songs.  I at the same time hate and thank my kids for the fact that I know these songs.  See if you can find 4 quotes and identify the respective songs.  If you can, you should feel very proud inside but admit this accomplishment to exactly no one.  Just like enjoying math class as a kid, knowing the lyrics to catchy, shallow pop songs is not something to share with the masses.

To the blog...And it goes like this…

Groupon and other Daily Deal providers – Are they a valuable tool to help grow your business?  Or are they a trap that will cost you a small fortune and maybe even your business?  When considering doing a Daily deal for the first time, you have to be thinking - I’m gonna run right to, to the edge with you…But is it the edge a cliff?  Or retail glory?  There are currently votes in both directions.

If you are a local retailer trying to understand the math behind the Daily Deal and deciding if you want to go that route, then this melody was meant for you.

The opportunity to reach a huge number of customers that are geographically relevant and instantly drive a bunch of business is enticing.  But the discounts that you must offer to play the game make it challenging to do it profitably.

Developing a Groupon or other Daily Deal plan and assessing its success requires some numerical analysis.  Profit or loss from a Daily Deal offer is driven by three sources:
1) Profit/loss on the initial deal.
2) Profit on any upsell of the initial deal redemptions.
3) Profit on future sales of sales to new customers gained by the campaign.

The first number is fairly straightforward to measure simply, but unfortunately the simple math is incorrect. 

The simple math is:
Profit/loss per redeemed Daily Deal = Daily Deal price paid by customer – Daily Deal fee paid to deal provider – Cost of goods for amount of deal

For example, if a restaurant issues a Daily Deal where a customer gets $40 of food for only $20 and the Daily Deal fee is an additional $4 and the cost of goods for $40 of food at menu price is $15, then the profit per redeemed Daily Deal is $1 ($20-$4-$15) per redeemed Daily Deal.

The merchant also earns a larger profit for any unredeemed Daily Deal purchases.

Profit for unredeemed Daily Deals = Daily Deal price to customer – Daily Deal fee(basically you do not pay the cost for the food for the unredeemed offers)

Using the example above, the profit for unredeemed Daily Deals is $16 ($20-$4).

If you multiply the number of redeemed Daily Deals X Profit per redeemed Daily Deal and then add the number of unredeemed Daily Deals X Profit for unredeemed Daily Deals, then you know the profit/loss from the initial Daily Deal sale and redemption.  Right?  Actually…wrong.

This formula assumes (incorrectly) that the Daily Deals were purchased by customers who would not have purchased without the Daily Deal offer.  But in reality, a large percentage of Daily Deal offers are redeemed by customers who were going to come anyway.  For customers who were going to come anyway and pay full price, you lose money on the Daily Deal equal to the Daily Deal discount and fee.  This is money that goes to the customer in unnecessary savings and Daily Deal provider in fees that customers would have happily paid to you if not for the availability of a deal. 

Simple example:
A restaurant sells 100 Daily Deals.  The Daily Deal is good for $20 of food for a cost of $10.  The Daily Deal provider’s fee is $3.  The cost of goods for $20 of food at menu price is $6.  Of the 100 Daily Deals purchased, 20 go unredeemed, 40 are sold to regular customers who eat at the restaurant weekly regardless of available discounts and 40 are redeemed by new customers.

The simple, incorrect math says:
Profit on unredeemed Daily Deals = 20 X ($10-$3) = $140 profit
Profit on redeemed Daily Deals = 80 X ($10-$3-$6) = $80 profit
Total profit = $220

This suggests that the sale and redemption of the initial Daily Deal is profitable by itself.  Plus you get the value of upsells on top of the $20 Daily Deal.  In addition, you hopefully get new regular customers from those who tried you first via the Daily Deal offer and decided to come back.  It’s a huge success!  Right?  Wrong again.

Correct math says:
Profit on unredeemed Daily Deal = 20 X ($10-$3) = $140 profit (same as before)
Profit on redemptions by new customers = 40 X ($10-$3-$6) = $40
Loss on unnecessary discount to regular customers who purchased Daily Deal = 40 X ($10+$3) = $520
Total loss = $340

The loss on unnecessary discount to regular customers is a little tricky and worth deeper discussion.  You do actually earn the same profit on the initial deal as if they were new customers.  But you need to think of things relative to if you did not do the Daily Deal.  If you did not do the Daily Deal, these customers would have come anyway and you would have received the full $20 for their purchase not the $7 that you received after the customer takes a $10 discount and the Daily Deal provider takes their $3 fee.  This is money that could have been in your pocket.

This is obviously a huge difference!  The simple (but incorrect math) suggests that you are plus $220 before you consider the effect of upsells and returning customers.  The Daily Deal seems like a no-brainer.  But when you correct the math for some of the discounts that are really just giving away money unnecessarily, the initial return suddenly swings to a significant $340 loss.

But this is not the entire story.  Smart merchants often price Daily Deals to allow significant room for upsell.  The upsell revenue comes at regular menu price (since you cannot usually combine a Daily Deal offer with another coupon or offer) and therefore a solid profit margin.  In addition, the elephant that you are really chasing is winning new customers.  Even if the initial Daily Deal offer loses money, if it gains you a bunch of new customers, it can pay off.  If those new customers come back and pay full price week after week, then an initially unprofitable Daily Deal could correctly be considered a wise marketing investment with a significant long-term payoff.

My aim is to post a part 2 by early next week that will dig into the numbers for these bigger picture items.  So if the math in this blog was too much to bear, you better run, better run faster than my bullet (my next blog).

For a quick heads up when a new blog is posted, please follow us on Twitter at miplaces.

Matt Karash (VP Sales and Marketing @ Social eMotion) mkarash@social-emotion.com