Doing deals the right way

I’ve voiced quite a bit of opposition to the daily deals industry, but that doesn’t mean I’m opposed to discounting in general. Discounting can be an important part of the marketing mix, especially for encouraging trials.

What I’m opposed to is stupid discounting to cheapskates and giving away generous discounts to people who would pay full price for your products. That’s a bad use of marketing dollars.

Let’s say you’re running a spa. Who should you offer a 50% discount to? I would want to reach people who:

• Hadn’t been to my spa before.
• Lived close enough to my spa to visit on a regular basis.
• Had shown a propensity to buy spa services or similar luxury services.
• Are affluent and have the discretionary income to pay full price for my services.

I don’t want to offer deep discounts to people who live far away or people who can’t afford my services. They can’t or won’t come back at full price. I also don’t want to give deep discounts to people who are already my regulars.

An untargeted email list can’t do that. But data can.

Yesterday I wrote about how transaction data can be used to create better recommendations for consumers; that same data can be used to create intelligent, targeted marketing opportunities for small businesses. As with recommendations, AmEx is best positioned to capitalize on this (Disclosure: I have a very tiny stake in AmEx).

“The more data that you have, the better you’re able to target not just deals, but offers and experiences to an individual,” said Dan Schulman, AmEx’s Group President for Enterprise Growth. “To move away from spam. I think we’re going to look back on the Groupon approach in three or five years from now … we’re going to all say, ‘That was such a blunt tool.'”

“My view of the world of the future is that this isn’t about going to a retailer and saying, ‘What deal do you want to make today?’ It’s basically going to a retailer or a brand and saying, ‘What deal do you want to make to Rocky today? What deal do you want to make to Dan today?’,” Schulman said. “And there’s no way that any retailer or brand could actually do that. But with data, you could actually micro-segment. We come to this future vision of how you go do that armed with some great assets.”

AmEx has a product called Go Social that lets small businesses target offers on Facebook and Foursquare, although not to the level of targeting I described. Twitter integration is in the works, according to Leslie Berland, SVP, Digital Partnerships and Development at AmEx.

Targeted offers are all around us. United recently ran a promotion that offered up to 25,000 bonus miles for traveling on the airline. I had frequent flier accounts with Continental and United. For whatever reason, they didn’t get merged when the airlines merged. I received the promotion on my former Continental account. I didn’t get the offer on my United account. That’s because I had been posting my flights to the United account. Based on that data, they know that I’m someone who would fly United anyway, so spending marketing dollars on me is a waste of resources. It’s better to use that money to create even more generous offers for people who aren’t already flying.

If they looked deeper at their data, they would notice that I’ve stopped flying United on routes where Virgin America offers service. As Virgin expands its San Francisco presence (it’s launching service to Portland in June), it presents a bigger threat to United’s lucrative SFO business. United should be sending me promos on Virgin-competitive routes, but not on routes where it provides the only service. On the other hand, when Virgin launches its own elite program, it should offer complimentary elite access for United elites based in San Francisco. If I were running Virgin’s marketing, I would also offer a limited number of space-available upgrades to United elites. Once you’ve lost your Virgin virginity, it’s hard to go back.

Less effective than using data, but still much more effective than mass spam, is to use affinity groups to hit your target audience.

Cathay Pacific announced a promotion that allows Klout users who have scores of 40 or above to use their premium lounge at SFO for free. If you offered that to everyone, the lounges would be full and you’d annoy your regular customers. Delta, which has run Groupon deals for access to its SkyClubs, has gotten flak from its regular members over the Groupon crowd. But by targeting the movers and shakers, you can deliver a high-quality experience with hopes of convincing people who are likely to be your customers and likely can afford it.

FoundersCard is another example of how to reach a highly qualified audience. The membership club for entrepreneurs and innovators recently launched its own promotion with Cathay Pacific. Members get free elite membership in Cathay’s frequent flier program. That provides a range of benefits including access to Cathay lounges, priority check in, and discounts on travel. That benefit is too generous to offer to everyone. But because FoundersCard’s 5,500+ members are highly targeted, it makes sense. (Disclosure: FoundersCard provided me a free membership for review purposes.)

Unfortunately, these types of tools have typically only been available to large companies with marketing teams that can figure out how to best use them. The challenge for Silicon Valley is to find ways to make sophisticated, efficient marketing simple and accessible to small businesses.

Disclosure: I have short positions in Groupon.

[Image credit:  igor kisselev/Shutterstock]