Local marketing is hot. With existing services like yellow pages, local ads etc. no longer being effective and with innovations in Mobile and location based technologies, smart entrepreneurs are building services targeting local markets like never before.
So if you are an entrepreneur who has built your shiny new service and tested it out with a few “innovative” local businesses, you are probably now worried about “Early Adopters” and how to cross the distribution “Chasm” and acquire enough local businesses to scale. When dealing with local businesses, the decisions in this phase of your startup are crucial to determining if you are able to cross the chasm or perish in it. But have no fear, as I will walk you through 5 different distribution approaches that 5 different successful companies targeting the local space have taken. While some of the distribution approaches are dictated by the product choices you have made, there are always tweaks and elements of different approaches you can assimilate to make your approach better. Think long and hard about these options and pick the ones that work best for you:
- Consumer first approach: The idea here is to first build a consumer-focused service and a strong consumer-base before approaching local businesses. Some of the companies with this approach are Yelp, FourSquare, Foodspotting etc. Keep in mind building a big enough customer-base with which to target local businesses is really hard because typical local businesses get their customers from a 2-mile radius. And so having enough users in 2-mile radius circles across America is a herculean task. This is a great way to go if you build an engaging and utilitarian service that people want to use repeatedly and build viral loops to increase the utility as more people use the service. Yelp was able to do this by building reviews and using that content with SEO/Google to bring more people back to its service. FourSquare does it with publishing to Twitter and Facebook etc.
- Direct sales to 1-2 location businesses: The approach to business development here is to hire a sales crew to sign 1-2 location businesses. Some of the companies that have succeeded with this approach are GroupOn, YellowPages and OpenTable. The challenges here are all related to getting the numbers to work, as a dedicated sales-force tends to be expensive. A rule of thumb to succeed with a direct-sales model is to have each sale be worth more than $5K (1 years value) with as much of the fees front-loaded as possible. GroupOn is able to afford a dedicated sales force because a typical sale is more than $5K. OpenTable is close to that number as well and so is YellowPages. So make sure you have a way to get to yearly revenue close to $5K before you embark down this path.
- Distribution Partnerships: Another way to acquire local customers is to make distribution partnerships where your product is either presented or actively sold by your partner. The partner, of course, gets a referral fee for all the customers they drive to the company’s service. One of the businesses that succeeded with this approach is ConstantContact. ConstantContact signed a partnership with Network Solutions and many other portals. And when local business owners visited Network Solutions to get their domain, they were offered ConstantContact email marketing services. This approach can work as long as your product is an easy sell and does not require a lot of sales support from you or your partner.
- Affiliates: A popular way to acquire customers is to sign up affiliates and to enable these affiliates to make sales for you for a commission. This model is fairly popular with local coupon companies like MoneyMailer or SMS based marketing companies. Typically the best way to do these affiliate deals is to take a regional approach where you sign regional managers, and have them recruit and manage individual affiliates. These affiliates own the local relationships and are often selling products and services from other companies in parallel. Typical affiliate fees comprise of a 20% cut to the individual; 10% to the regional manager with the rest going to the corporate offices. The challenge with this approach is that before signing up affiliates, a company needs to streamline and simplify its business, document the best practices and develop sales training materials and tools for the affiliates. This requires a huge investment and introduces the risk of having a 3rd party represent you to a customer
- Seed + self-service: A traditionally popular way to acquire customers is by seeding the marketing with some marquee deals. These deals give the company visibility, drive customer adoption and reduce risk for new local businesses considering using the service (If McDonalds’s is using a service, it should work for my burger joint as well). A number of Saas services like Fishbowl marketing use this approach. With this approach, the company needs to make sure that the service being delivered is easy to customize (if at all) and 1-2 location businesses can sign themselves up (not very successfully as yet though). The important thing to understand and model is the viral channel available to the service.
Local markets are complex. Make sure you model your customer acquisition strategy with care and foresight. Your decision regarding the distribution of your service will likely makes or breaks your company.