The dilemma - how to help merchants of products and services sell more yet enable these same merchants to control the distribution of their promotions. Whether flash sales, group buying, deal of the day, coupon distribution, comparison shopping, affiliate programs – solving the issue of increasing demand while giving merchants control over this demand remains a significant challenge.
Consider the number and types of models that are emerging. From deal sites - Groupon, LivingSocial, The Deal Map, Yipit fit in this category - to the location-based firms like Foursquare, Gowalla and ShopKick, everyone seems to be looking to local marketing as the next killer app. Yelp and OpenTable are making forays into location-based promotions. Facebook will surely enter this space with a bang – rumored to be as soon as tomorrow. Google has unveiled local merchant tools as well. All of the above will continue to improve their platforms.
And merchants of all types and sizes are eager to use these new tools – whether services like restaurants, auto repair and health/beauty or products like electronics, apparel and lawn and garden. And all sizes of merchants are using these platforms too, including big-box retailers like Best Buy and apparel manufacturers like American Eagle Outfitters. Enabled by mobile and social, the “last mile” connection between online and offline retailing is nearing completion. Merchants are salivating. Site traffic is growing. Valuations are going higher. Venture capitalists are circling, waiting for consolidation that will create wealth opportunities. Not quite irrational exuberance. But the buzz is deafening.
Yet there remains a vexing problem. How to give merchants control over these new promotional channels when their primary focus is on store operations. Only the biggest retailers can devote proper energy and resources to managing all three legs of the stool - demand, store experience and supply. Even these retailers are struggling with the proliferation of demand-generating opportunities. Which ones to use? How to use? How to fit into their own marketing and merchandising strategy?
Recent stories about merchants being overwhelmed by discount-seeking customers flooding their store, squeezing out regular customers or otherwise disrupting service, shine a bright light on the conundrum. Yet, paradoxically, merchants seem to also love the new customers. They just don’t love that many new customers.
So while those who cater to local merchants take pride in their ability to turn a customer trickle into a raging river, they’re missing the larger point. Becoming a marketing partner for merchants is where the true value lies.
Merchants want customers. They also want loyal customers. They know that promotions typically generate customers. And they have money set aside to promote on a local level. Historically, though, that money was spent on newspaper classified ads, inserts in Sunday newspapers and local mailings. Predictable responses to this distribution meant predictable demand. An occasional great deal would get a slightly larger response, but still within a comfortable range that merchants would have no problem meeting the needs of these new customers.
This model is, of course, changing in pretty dramatic ways. Good deals are instantly found and indexed by the major search engines. The biggest sites like Groupon quickly notify their subscriber base. And instantly, the best deals spread quickly using mobile connections and social networking. Even loyal customers - who wouldn’t need discounts - are finding these deals. What was once predictable is now out of control.
Overwhelmed merchants are forced to make some tough choices – turn away new customers who are clogging the system or rapidly scale operations to accommodate new volume. Both are undesirable. Scaling operations is impractical. Even large retailers complain that uncontrolled discounting is hurting their margins and negatively impacting customer loyalty. They’d rather tailor offers to segments of customers based on their own customer marketing strategy.
The response from all these new online sources of promotional content is muted. A few are trying to bound the offers by volume while others are restricting coupon usage and redemption. But nobody has yet to create a marketing portal for merchants.
Key features of this portal would enable merchants to tailor their promotions. For more sophisticated merchants, this means weaving their own merchandising calendar and customer segmentation strategy into promotional programs. Merchant portals will include features to micro-target, select customer segments, and define offer and treatment strategies (even multi-stage offers). These systems will closely monitor budgets, drawing these budgets down when offers are redeemed. Creative treatment will be more closely managed so as to ensure brand consistency. Reports will be available on-demand, giving merchants a lens into their program’s performance whenever they choose. And these reports will automatically note exceptions to key metrics, quickly calling out techniques to optimize program performance. The best tools will automatically optimize given agreed-upon parameters, informed by sophisticated embedded analytics that constantly scan data for opportunities.
Merchants know the days of newspaper inserts are numbered. Yet they are hesitant to fully embrace digital distribution. This reluctance is offset by the undeniable popularity of online promotions. They’re feeling enormous pressure to move quickly…and when they do, it’s often with unintended consequences and undesirable trade-offs.
Those providers of online promotional tools need to guide merchants into this new world, providing tools to help them manage and monitor their programs. The ones who give merchants what they’re looking for will reap the rewards of a healthy supply and demand ecosystem.
These innovators will be the points of consolidation in the industry. They will create value and be rewarded for this value creation. Those who don’t respond to merchant needs, or who are too focused on the demand side of the equation, will alienate merchants and will have a less compelling value proposition. They will see their business deteriorate as both supply and demand will migrate to a better user experience.
