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.
New blog post at Punchh Blog:
New Blog Post at Punchh Blog:
Google places iPhone app was announced today. This is the first rev of something that is likely going to be pretty big. A quick review:
Good: Lots of data, Aggregated feedback (Yelp, CitySearch etc.)
Bad: Very basic interface, no checkin, very few pics and most of the pics are taken from outside
Ugly: Hard to use, search based interface with very little browsing support e.g. if you want to find Indian restaurants close by you have to do a search. A little bit better taxonomy would be helpful
Ways to go before it become a highly used consumer product.
Today there was an interesting article in BusinessWeek that confirmed what we were expecting since Eric Schmidt announced support of NFC in the latest revision of Android OS late last year.
The article talks about how
A single NFC chip on a mobile phone would hold a consumer’s financial account information, gift cards, store loyalty cards, and coupon subscriptions, say the people familiar with Google’s plans. Users may also be able to make online purchases from their phones. By scanning a movie poster, for instance, a consumer might read reviews and use the Google service to purchase tickets.
(For those who don’t know, NFC is the Near Field Communication technology which enables communication in close quarters between a cell phone and another device (active) or an RFID (passive) tag).
On the front end this means that Google will be developing a wallet application. This application will do something like the following:
- Store customer information like Credit Cards, Paypal, Google Checkout, Facebook Credits, SocialGold stuff etc.
- Provide an interface for users to use a payment source to pay a bill. The amount of the bill might be automatically send from the receiver or might be entered by the user. The user will have a chance to add a tip
- The user will then tap the device
- Tie all this payment information with coupons and ads shown to a user on their phones etc. This will enable end-to-end tracking of ad ROI for users.
- Enable loyalty programs etc although tying loyalty program to a fragmented payment market might be ineffective
(How will this flow work when users are dining at a nice restaurant and the payment does not happen at a checkout counter?)
At the storefront, Google will need to provide an internet connected device (see my previous article Google to hand out devices to local businesses . They will likely work with the existing processors in the beginning). This device will likely do the following:
- Handle Credit card transactions (This will likely disrupt the processors – they are going to fight this tooth and nail – interesting to see how this shapes up)
- Manage the communication with the phone based wallet app
(How will this interact with the POS systems, and who will retail what data? I think Google will eventually release a simple POS system as well with this)
If Google gets really ambitious and wants to get a bigger piece of the pie, they will need to take on the existing payment providers like Visa etc.:
- Become a massive credit card processor (This massive aggregation is going to challenge the payment networks like Visa, MC etc. and they will likely work against Google)
- Develop a currency like Facebook credits (Jambool acquisition?) to benefit from control of the end-to-end payment process
- Provide reporting, customer support, account management for all the local businesses.
This is going to be quite an undertaking for Google. This development does open a lot of interesting strategic questions for companies like Facebook, Paypal etc. But that is subject for another post.
Local markets have been tough for high-tech companies. If you talk to investors or entrepreneurs, you typically hear a sad story of distribution issues, technology issues, costs etc. What you rarely hear are issues related to value proposition to local businesses. You don’t hear of whether a local business found a service indispensable or even valuable as if a local businesses should be happy to provided any service at all.
These companies (e.g directory listing, web sie creation, coupon listing, self-service location-based companies etc.) have mostly focused on targeting larger number of customers and getting a good conversion factor instead of the customer value proposition.
With the advent of social media these businesses are going to have a tough time staying relevant. Businesses will demand more and more measurable ROI. With location-based and mobile computing there are going to be more and more ways to deliver these services in a cost-effective ways.
This of course is great news for local business owners who will get a pick of services that deliver real ROI to them and finally we will new billion dollar companies developing by focussing on adding value to customers.
Great piece by Mark Pastore owner of Incanto, a nice italian place in San Francisco.
Mark makes a couple of really important points in his nicely written post:
1. With OpenTable, restaurants no longer own the relationship with customers. This means that the customer loyalty is to OpenTable and in essence businesses are paying OpenTable to create a loyal customer for OpenTable. Once OpenTable has that customers, businesses need to keep paying OpenTable for access to that customer.
2. OpenTable is expensive. Mark talks a lot about typical margins at restaurants of about 5%. with these margins he finds it difficult to justify the payments to OpenTable.
The overall point that Mark makes is that network based businesses that own customers (like Yelp, GroupOn, MerchantCircle or OpenTable etc.) are not great for local business. This is because if a network owns the customers, business will be held hostage by the power of the network.
Could not agree more!!!!