DealEx: Inuvo's Newest Way to Help Merchants Acquire New Customers

The last couple weeks here have been very exciting, and I’d like to tell you about a new product we are rolling out. This product is called DealEx, and it is technology that allows a merchant to create pre-paid deals for their businesses that consumers can purchase! This type of deal has become popular with sites like Groupon and Living Social as of late, and we’re looking to give the opportunity to more merchants to use these types of deals to drive new customers to them. If you are not familiar with these types of sites, here’s a crash course… These types of sites provide daily deals with heavy discounts off retail to consumers in local markets. The idea is that a customer pre-purchases the deal from the site, then redeems it at the merchant’s business. An example would be paying $10 for $20 worth of food at a local restaurant. The consumer pays the site $10 today, then goes to the restaurant and shows their “deal coupon” to receive $20 worth of food. This has become a great way for local merchants to get new business, and the “deal-a-day” site earns a percentage of every deal sold. It’s been working so great for Groupon that they have been doing $3,000,000 in sales per day! As impressive as this is, we think there are some ways it can be improved, which is why we have built DealEx!

A few of the flaws we see that can be improved:

• Only One Deal per Day: Merchants can only run their deal for one day. This can have several negative effects for a merchant, including getting too many customers all at once (how is a small local restaurant going to stay in business after giving a heavy discount to 2,000 new customers in 24 hours and hoping they come back again?). In addition to this, many of the “deal-a-day” sites have enormous demand, meaning merchants may have to wait as long as 6 months in many cases to offer another deal.

• Skewed for Consumer Satisfaction Only: The deals tend to heavily favor the consumer by providing such steep discounts that many merchants end up taking a huge loss up front. Although this is great for consumers, it can harm the merchants. Many “deal-a-day” sites reject upward of 85% of the deals submitted to them. In many cases, this means that merchants who aren’t willing to take a huge loss up front will never get their deal featured. This translates to hundreds of local deals per day that are rejected!

• No Limits: Many “deal-a-day” sites have become quite selective in order to get deals that make them the most money. This ends up meaning that most deals have no cap on the number sold, or terms like minimum purchase amounts that a customer must meet to get the deal. This leaves a huge amount of merchants out in the cold who need these types of restrictions in order to have a deal that will work for them.

• Localized Focus: Most “deal-a-day” sites work solely with local merchants. This means most national brands have no way to offer a deal that can be used on a website, or promoted to an audience larger than one specific local market. There have been some national deals, but they are definitely not the norm, and require an extreme amount of planning in order to coordinate getting all the different local market slots available across the site on a specific day.

How DealEx is Different:

We are focused on building the infrastructure to allow merchants to create deals, and instead of them being promoted on only one central website, they are distributed out to sites all over the web that shoppers are already visiting. Our solution is a “feed” of deals. Instead of just one deal per day, it’s a list of all available deals that publishers can work with and decide which to show to their visitors. For instance, a publisher could display all deals in a market to their website visitors based on zip code, or decide to show all the national sporting goods retailer deals in the sporting goods section of their site. This gives publishers unprecedented flexibility, and since they earn a percentage of any deal purchases they refer, they can earn a lot of money just by showing deals on their site.

DealEx solves the problems with the “Deal-a-Day” sites by providing:

• Custom Time and Volume Limits: Deals can be listed for as long as the merchant chooses. They even have control to set budgets like “200 per month” to control the influx of business. In the local restaurant example, maybe they don’t want 2,000 customers all at once, but they do want 200 each month to fill tables that are usually empty. We are happy to power smaller deals like this that the “deal-a-day” sites may reject!

• Win-Win Deals: We are making it a point that merchants create deals that make sense for them. We don’t want deals that are too skewed in favor of the consumer just so we make a quick buck on the merchant’s misfortune. Unless the deal is good for the consumer AND the merchant, we’re not interested!

• Minimum Purchase Limits: Some merchants might need to add fine print like “minimum $40 purchase for the $10 for $20 deal to be used.” This is still a great deal for the consumer (they get $10 of free food/merchandise), but it doesn’t cut the merchant’s margins so thin that they lose money.

• Local and National Deals: Since we are providing a feed, we can easily provide local and national deals, and let the publishers decide how to display them. This gives the publishers new high-converting inventory they can’t find anywhere else!

The DealEx Model

Now I’d like to cover how the model actual works, and how people can make money. We’ll use the following example: Pay $100 for $250 in credit for a hotel stay, with a $400 minimum purchase required. In this instance, the customer pays Inuvo $100. We take $3 to pay credit card processing fees, which leaves us with $97.50 to divide between the merchant, the publisher, and Inuvo. The merchant gets half ($48.50) and the rest gets split between Inuvo and the publisher that refers the customer. Basically, the merchant gets $48.50 before the customer even books a room! Sell 1,000 of these deals, and the merchant gets $48,500 up front! In addition, evidence shows that around 20-30% of purchased deals never get redeemed, but the merchant still earns revenue from them up front. In our example, let’s say an average booking totals $550 for this hotel. Based on this data, offering this deal is the exact same as if the merchant was offering 33% off retail, which is generally well within a hotel’s margins. And don’t forget they will also make money on the customer eating in their restaurants, gambling in their casinos, or using other amenities. The economics of it all are very interesting, and we have a calculator pictured below that lets us help merchants to calculate expected results ahead of time depending on the variables of their deal.

The main points to keep in mind are:

• Ensuring the “% off retail” number is lower than the merchant’s margins ensures that the deal is profitable for the merchant even if that customer never comes back.

• The higher the actual final amount the customer spends, the better the results are for the merchant. This works great for anyone with upsells or a continuity model.

As you can see, this method is a great way for many merchants to drive new customers to their business, and our solution gives merchants much more control over the deals to ensure profitability for them. This product will be launching soon with both a selection of great national deals, but also some local deals in Tampa and other cities around the country. If you’d like to get more information, you can contact us at dealex [at] inuvo [dot] com (DealEx [at] inuvo [dot] com.)