It was early 2011. Groupon and Living Social were KILLING IT and companies everywhere were incorporating “daily deals” into their business model. A connection of mine left Overstock.com to turn around a local daily deals company called CityDeals and the opportunity presented itself to come on board. I jumped…
My Role? Digital Marketing Director (AKA – Head of Digital Marketing).
The Company Background? Unlike Groupon or Living Social (where there was one or two deals per city Nationwide), CityDeals had 100’s of deals from local businesses in the Salt Lake City to Provo, Utah Corridor. It was really a local ecommerce business with gift certificates as the product.
The Challenge: CityDeals was losing about $300k a month. Investors wanted to turn the company around and prepare it for acquisition. I knew it was going to be a short term gig, but the challenge… well, it was irresistible.
Like any good analyst, assessing the situation is step number one. After investigating, we discovered that most of the digital marketing channels were not really functioning properly or were non-existent.
In other words, using the “revenue equation” (revenue = traffic x conversion rate x average order value) as a growth framework, the traffic variable in the equation was suffering. Conversion rate, on the other hand, was hitting the benchmarks and AOV (Average Order Value) was ok with UPTs (units per transaction) being around 1.8.
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In order for us to grow, we needed to increase our TRAFFIC and maintain or grow the CONVERSION RATE and AOV variables.
So, how were we going to do that?
For starters, turn on the fastest traffic driving channels (Paid Search, Email) and improve the digital marketing channels that already existed (SEO and the Affiliate Program).
So we got work.
If you remember back to 2011, Groupon and Living Social were outspending EVERYONE on marketing and customer acquisition. According to Groupon’s 2011 Annual Report (10k) “We have made significant investments to acquire subscribers through online marketing initiatives, such as search engine marketing, display advertisements, referral programs and affiliate marketing.”
Well, they weren’t kidding. Again referencing the Groupon 10k, in 2008 they spent $163,000 in marketing. 2009 – $5,053,000; 2010 – $290,569,000; and in 2011? A whopping $768,472,000 (no wonder they turned down the BILLION dollar offer from Google. They were spending almost a billion dollars a year on advertising).
Now, the 10k doesn’t tell us the breakdown of spend on Paid Search. However, it must have been high. Maybe even to the tune of 70% of the ad spend, if not more. And as we dug into their program, the question came…
How was our tiny, small-budget, underwater start-up going to compete? The answer?
After analyzing what Groupon and LivingSocial were doing with paid search, we found they were advertising for just about EVERY local deal you could think of.
For example, if you typed in Spa Deal or Salon Coupon or Restaurant Deal, Groupon would have an ad for that deal and would take you to their homepage advertising whatever the deal was for that day. However, because Groupon/LS only had one deal per market per day (if you were in a market that was large enough), if the deal of the day was for a restaurant and you Googled “Spa Deal,” guess what your experience was? Disappointing…
Finally, a strategic weakness we could capitalize on.
If you were disappointed when you clicked on Groupon’s Paid Search ad, what do you think you would have done? That’s right… Hit the back button to go back to Google. And we knew if you hit the back button and no longer trusted the Groupon ad, you would be looking for an alternative.
So, instead of just advertising our branded terms (the way CityDeals had historically run paid search) we built out ads for all our local deals, made sure we only showed ads for deals with inventory, landed customers on the individual deal pages (instead of just the home page), constrained showing ads based on geography (just to our area), and adjusted bids to show up second or third in order (BELOW Groupon and Living Social).
We let Groupon and Living Social spend the outrageous amounts of cash on ads that were not relevant (thus lowering their quality score and increasing their cost per click), and won you as a customer with relevant advertising.
Did it work? A resounding YES.
We optimized to a 5:1 ROAS and pushed as much traffic as the search engines could give us, increasing our traffic AND conversion rate.
Sometimes we are so focused on building out the campaigns and looking at our own metrics, we don’t take the time to do a competitive analysis – which can yield incredible insight both on a strategic AND execution level.
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Now, onto EMAIL.
As we were now driving an increasing number of new customers to the website via Paid Search (AND CONVERTING THEM), we needed to turn a one time purchaser into a multi time purchaser. And what is the best and cheapest way to communicate once you have a customer?
However, we had a couple problems… The email list was small. Maybe 20k people. Email was only being sent once a week and we were only highlighting one deal or two deals per email. Additionally, we weren’t running any promotions – though the deals in and of themselves could be considered promotions. And finally, we had no email capture mechanisms in place – outside of purchases (which were increasing because of paid search).
What did we do?
Well for starters, we increased the frequency of email communication – starting at three a week and eventually moving to one email a day. Did we have list churn? Of course. But because the emails were focused on deals – sometimes with extremely limited inventory, we capitalized on the principle of scarcity and urgency to drive excitement and the frenzie mentality which drove traffic to the website and kept our unsubscribe stats down.
We used headlines like “Extra 30% Off Select Food Deals Until 8:00 PM MDT (or until sold out!)” to help people act quickly.
Next, we started segmenting people via geography and purchase intent. In an effort to make the communication more relevant, we started micro-segmenting our communication. If someone lived in Provo, we would show them just the deals close to Provo.
By the end, our list had grown from about 20k to around 200k people and was driving over 300k people to the website each month – accounting for over $600k in sales.
In essence, we were using paid search to win new customers (accounting for the bulk of the list growth) and then using email to capitalize on the new customer investment.
No matter your vertical, email still plays a critical part of customer communication. For healthy retailers, email typically drives 30%-50% of the sales. Use the following principles to think about and improve your email program.