Growing customers - advertise to attract, reward to retain

In the last week or so, Constant Contact has released a new 'deals' product designed to give Groupon and LivingSocial a run for their money. Or more importantly, Constant Contact's SaveLocal aims to help small businesses control the deals they offer. With discounts they can afford businesses attract new customers by rewarding current customers that share their coupons with their network. It is an interesting concept, and just one of the tools that small businesses can use to attract new customers. But do deals just downplay the value of what a business offers, cheapening the product and the vendor?

The concept of SaveLocal, is that by offering rewards to current customers for sharing your coupons with friends, you are more likely to grow a local and loyal new customer base. Today's New York Times online article, A Groupon Alternative Aims to Offer Small Businesses a Better Deal talks with Constant Contact's CEO to flesh out the details of the way it works. When it comes down to it, the argument is that small businesses typically thrive on referrals and endorsements from current customers, since the new customers they bring in are likely to provide repeat business.

Groupon on the other hand does the opposite, focusing on a mass of previously unknown wannabe customers sharing with their bloated social networks, in order to satisfy the entry requirements for getting 50% or more off. The Groupon masses are likely to just take the discount and never be seen again. Which means that your discounted rate minus fees still has to cover costs, because a businesses is unlikely to recoup much from a new customer base. If profit margins are over 75% on your products (remember that Groupon takes half of your discounted coupon value, so you effectively see 25% of the full price) then Groupon can get you a flood of customers really fast. Some may come back.

This is the issue with deals to attract new customers: like any discount scheme, the customer's expectations have now been set based on the discounted rate. In future they may not want to pay double what they paid the first time. And if a sub-standard service was offered, there will be no repeat business anyway. There are not many wins in this.

For years, this approach to attracting and retaining customers has worked for companies big and small:

market for awareness, advertise to attract, reward to retain

Advertising your products at full price, spending 25-40% of your sales on advertising may ensure that your brand doesn't suffer a devaluation up front. With new customers in place from advertising, the SaveLocal approach can then help keep them loyal, since they've paid full price for the products and now feel rewarded for coming back again and again, and encouraging their friends to do the same.

So it seems that deals can be seen less as pure devaluation of your products and more as rewards for loyalty, as long as you use them right. Huge discounts to an unknown crowd seems like a risky proposition. I think I'll stick to marketing with valuable content (does this blog count?!), using free business listings (Manta, Google Places and Consected's own Roaming Local), Google AdWords for online advertising (contact me for a $100 coupon to get started - no obligations), and rewarding my current customers in very individual ways.

A post from the Improving It blog

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