In the year ending May 2014, Americans made 61 billion visits to restaurants. That’s down from 62.7 billion in 2008 and flat compared to the last several year. Of the over 1 billion visits lost each year, the vast majority have been to independent establishments.
This lost of visitors was compounded by daily deal providers sucking value away from local merchants. In 2011, revenue for daily deal providers like Groupon grew 138% but visits to independent restaurants were down 4%. According to Bill Bice of Coverboom this works out to $280M lost by independent restaurant owners.
Groupon grew out of a social activist website called “The Point” to became the fastest growing company ever with an apparently great idea that seemed to serve the needs of small business owners. “The Point” got its name from The Tipping Point: How Little Things Can Make a Big Difference, a book by Malcom Gladwell: “The success of any kind of social epidemic is heavily dependent on the involvement of people with a particular and rare set of social gifts.”
The Groupon model lost sight of the fact that all businesses have Gold customers – a small percentage that provides 80% of their revenue and profit. The deep discounts of daily deals devalue these customers.
Instead of devaluing your customers by offering deep discounts, small businesses can create database marketing campaigns. The basic idea in database marketing is to build a close personal relationship with each customer that is based on quality, service, friendship, loyalty, and communications. And, not based on discounts. You would not give a neighbor $5 for helping you move furniture. It would be an insult. Instead, you offer a cup of coffee or a beer, and 15 minutes of chat around the kitchen table. That is the kind of relationship that database marketing creates. Discounts send the wrong message: we are cheap guys whose basic product is overpriced. We want to buy your loyalty. We don’t care about you. We care about your money.
With database marketing campaigns, you can identify Gold customers and develop programs designed to retain them. You use resources that you could not afford to spend on all of your customers. Profits come from working to retain the best, and encouraging others to move up to higher status levels.
Small business owners must also contend with the fact that overwhelming clutter has made traditional advertising nearly worthless for their businesses. We live in a world that has become ad rich but idea poor. Your customers don’t want to be bombarded with ads—they want to be inspired by ideas that will change their lives. Ads may create transactions, but great ideas create transformations. Ads reflect our culture, ideas imagine our future.
Emile Durkheim described human beings as “Homo duplex,” or “two-level man.” The lower level is the level of the profane—the level of ordinary consciousness and self-interested pursuits. The higher level is the level of the sacred at which we lose our petty selves and become simply a part of a larger whole.
Jonathan Haidt author of The Righteous Mind wrote:
I mean that we evolved to see sacredness all around us and to join with others into teams that circle around sacred objects, people and ideas. This is why politics is so tribal. Politics is partly profane, it’s partly about self-interest. But politics is also about sacredness. It’s about joining with others to pursue moral ideals. It’s about the eternal struggle between good and evil, and we all believe we’re on the side of the good.
This perspective also helps explains the persistent undercurrent of dissatisfaction in modern life. Ever since the Enlightenment, modern secular society has emphasized liberty and self-expression. We exult in our freedom, but sometimes we wonder: Is this all there is? What should I do with my life? What’s missing? What’s missing is that we are homo duplex, but only our first-floor, profane longings are being satisfied.
The old model of advertising and branding was to improve public perceptions, and mainly focuses on our “profane longings.” The new model demands that businesses help to improve public life. To survive, businesses must start nurturing ideas, not just pushing products and services.
Knowledgeable marketers understand that what worked in the past is not working (or not working well) now. A new approach is needed. As A. G. Lafley, Chairman of the Board, President, and CEO of Procter & Gamble, told his executives, “We need to reinvent the way we market to consumers. We need a new model.”
Groupon became the fastest growing company ever by apparently serving the marketing needs of small business owners. What would happen if a company came along that truly served the needs of small business owners?