E-Mail Coupons: The New Way to Retail

People say there's POWER IN NUMBERS, and for shoppers who log on to certain websites . . . the numbers that count are the ones they're finding on heavily discounted price tags. Our Cover Story is reported by "The Early Show"'s Rebecca Jarvis:

Chicago's old Montgomery Ward Building is a monument to retailing days gone by . . .

But what's inside these days is the hottest new thing in retail marketing.

"When we think about the future of the company, we think about this mission that we have to transform the way people buy from local businesses," says Andrew Mason, CEO of Groupon.

Like "group coupon"… get it?

Just how does Groupon work?

"It's very simple: You'd sign up for Groupon, and every morning you get an e-mail that features a great local business," explained Mason. "It could be a restaurant. It could be theater. It could be a sporting event. It could be a spa. Or it could be a haircut or something. And we sell a discounted voucher - 50 percent off, 60, 70 percent off or more."

Seems like a simple idea. Mason put it into action two years ago, at the then-tender age of 28.

How successful has it been? So far, Groupon's sold more than 25 million of these discounted coupons. And analysts say revenue could hit a billion dollars by next year.

And Groupon just turned down - turned down! - a near-$6 billion offer from Google. Big bucks for a quirky company, where the average age is well south of 30.

Now, get this: In December 2008, Groupon had 400 subscribers. It now has 40 million Groupon "groupies" in 35 countries and 335 cities who get an e-mail offer every day.

And it's got competition. A site called LivingSocial has 10 million members in 5 countries, with more competitors nipping at their heels.

For members like Rachel Melena and Jeff Behm, every morning feels Christmas. They open their inboxes and tear through the daily deals.

Rachel shows us her phone: "If I look in 'purchase history,' we have the Hib at NYC, which was a kind of spa, like, threading place. And then, the Genoa spa is where we went for our massages beforehand. And then, Jeff has most of the restaurants."

They've got a big reason to save money. They're getting married in a few months . . . and collecting LivingSocial and Groupon offers for their honeymoon.

"The one I just purchased, I think, was two nights for $250 near Palm Springs," said Jeff. "So, to me, that's a pretty good deal. It's half-off, or a little over half-off of what their usual going rate is."

They also attended a painting class . . . for half off.

"These sites are a source of something different to do and it's a great idea," said Rachel.

"Yeah, when's the last time either you picked up a paintbrush?" asked Jarvis.

"Not since kindergarten, I think!" said Jeff.

The night we visited, they were going out to dinner . . . half-off, of course.

We followed them to the Club A Steakhouse, where Agron Selimaj is the manager. Here's how that deal worked on LivingSocial:

"We did extremely well, we sold over 1,100 coupons," Selimaj said.

. . . which bought a $150 dinner for $75. Do the math: That's $82,500 in coupons in one day. Typically, the business gets half of that, the website gets the other half.

Linda Abraham of ComScore keeps tabs on consumer online traffic. She says the sites are the perfect marriage of social networking and local business.

"It's a social activity, exactly," said Abraham. "And I think it combines the social, good deal and the local. And I think those three things really make it so viral beyond what we've seen before."

The point is that local businesses can get customers in the door in a big way.

"I think a big part of it is about trial," said Abraham. "And if you talk to some of the local retailers, that's what they will tell you, that it's really hard for a local store to get six, seven, eight hundred new people coming to a restaurant, for example, in a given time period."

Ricardo Rojas picked up 600 new customers at his small Manhattan salon with just two LivingSocial offers.

"We need to actually hire a third person to answer the phone," Rojas said. "It was absolutely, like, all the time calling, yes."

"So the minute the Living Social deal goes up, is that the minute the phone started to ring?" asked Jarvis.

"It's the minute that it started the phone ringing. Yeah, nonstop. Absolutely."

Jennifer Hethcoat called in for a hair straightening.

"I'm getting the Keratin treatment," she said. "It's usually $500, and I got it for 150 dollars."

With that discount, Rojas said it's not about the money he makes: "It's about the client that you meet - and then the client that you can keep."

Cheutine Fong, who works as a model for Rojas, gets about 20 new e-mails every morning from different deal sites.

Fong, a model who works for Rojas, says it's not just about dollars and cents, because while price may get customers in at the beginning, it's good service that will hold them once they arrive:

"I can pay for something, but if it's not good, it's not worth spending $35, $75. Even if it's cheap, if it's not good, then why bother wasting your money?"

But sometimes the margins get a little thin. One café owner in Portland, Ore., complained that her deal with Groupon cut the price on her food so much that it almost put her out of business.

Still, Groupon claims that 95 percent of its merchants would do it again.

Over at LivingSocial, CEO Tim O'Shaughnessy says it's not just about short-term profits, it's about marketing.

"How do you get retailers to agree to offer their goods and services for 50, even 70 percent off the price that they would charge a normal consumer walking in the front door?" Jarvis asked.

"Well, if you think about it, it's really a new advertising method for them that's very, very trackable," O'Shaughnessy said. "So, if they were to go and buy ads, whether it's the Yellow Pages or newspaper - "

"I don't know anyone who's reading the Yellow Pages or the newspaper right now for an ad," said Jarvis.

"Well, there you go," O'Shaughnessy replied. "They're lowering their prices. But they're also taking their marketing budgets to zero."

LivingSocial, by the way, just got a $175 million investment from Amazon, and probably wishes all its customers were like O'Shaughnessy himself.

He showed Jarvis what deal he has lined up:

"Well, I have a weekend getaway that I will take my wife on, which is just a couple hours outside of D.C. Another thing that's pretty interesting is, I actually just bought my Christmas tree at Santa's Forest, which I'll pick up this week." A tree that would have cost him about $85 went for $45.

So what's the future of these sites? Linda Abraham of ComScore sees virtually unlimited potential.

"Does it get to a business place where companies are all of a sudden using services like this where health care is this way? Where education is this way? Where housing, cars, you name it?"

"Well, I think that probably most companies in America are thinking about it as we speak," said Abraham.

"The power of group buying?"

"Exactly, and the power of huge discount. If you have a business model that is very heavily dependent on trial, whether you're a business or you have a consumer play, this is a model that you can't ignore," said Abraham.

Groupon's Andrew Mason says, "We've just scratched the surface."

Still, Mason isn't ignoring the lessons of other once-hot Internet startups that have crashed and burned.

But he's got one thing his competitors don't: A $6 billion offer from Google that differentiates Groupon from Living Social.

"That, well, we're a cool company, I think, yeah," he laughed.

For more info:
groupon.com
livingsocial.com
dealon.com
buywithme.com
dailyflock.com
thedealist.com
bloomspot.com
tippr.com
ricardorojassalon.com
clubasteak.com