Local Businesses, Social Coupons, and Customer Management

June 20, 2011 by
Filed under: Business Impacts, Data Analysis 

Last week I shared some thoughts about the popularity of local social network sites working with small businesses to issue coupons to drive new customer acquisition and in-store cross- and upselling. While I questioned the value, it is clearly a phenomenon that does seem to appeal to both the customer community and a number of businesses.

So my next question is about customer management: as a local business owner, how can you monitor the success of your coupon program in terms of measuring new customer acquisition and upselling?

Actually, here is a personal experience: I recently bought (for $10) a coupon worth $25 at a store that we already frequent. We were in the neighborhood yesterday so we stopped in, looked around for $25 worth of stuff, used the coupon, and left. So negative on both counts – we are not new customers nor did we buy extra stuff while we were there.

More interesting, the coupon was validated using some kind of smart phone app that took a picture and then verified that the coupon had not already been used. No further requests for information, and therefore no process to determine if we were new customers. In addition, the coupon was validated by one person at one register and our purchase was tallied and paid for at a different register. In other words:there were no processes in place to track customer acquisition, behavior, or purchase patterns. This clearly means that there were no processes at all to monitor the success of the coupon project.

I think that if you are a small business owner and your are planning to do one of these coupon placements, it is worth considering a simple customer tracking system, at least to see simple statistics regarding the degree to which the program meets your expectations.

Think of the potential risk. Let’s say you are selling a $25 coupon for $10, and the coupon vendor takes 40%. This means that you are going to be providing $25 worth on inventory for $6. Also, let’s say you sell 3000 of these deals. Let’s do the math:

Total sales revenue: 3000*$25 = $75,000

Total coupon revenue: 3000*$6 = $18,000

Cost of goods: say it is 75% of sales price, probably a wild overestimate for a supermarket: .75*$75,000= $56,250

Exposure: $75,000-$56,250 = $18,750

For you to break even, you’d think that each of the 3000 customers would have to spend an amount that would cost you $18,750, or about $6 per coupon use. Actually, that still costs you, since your margin in 75%. I think you’d have to make up the cost in your profit margin, which means that the $6 is in the 25% of the sale. That really means an additional sale of $24, or basically twice as much as the original coupon.

Is that arithmetic sound? Let me know if it isn’t.

Anyway, my point is really this: if it is going to cost you so much for your acquisition and your upselling, don’t you think you should have some more sophisticated method of tracking than the vendor-supplied smart phone app? It implies a few requirements:

  • A fast system for capturing customer information (got to do it at the point of sale)
  • A method for getting additional information about the customer (perhaps through credit card services?)
  • A store database system that has a customer database (I suspect this is not usually the case)
  • Some kind of transaction/activity tracking system (which might be updated sometime after the fact)

Sounds like a mini customer relationship management system, doesn’t it?

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