How to do better than Groupon in building local advertising market share

This year’s hottest buzzword in online news publishing – on the business side – has been Groupon. Business managers at start-ups and legacy media websites alike have been pushing the concept of “group coupon” services, such as Groupon’s, as the next great potential savior for publishing online.

Personally, I don’t think online publishing needs a savior. Despite what some folks at journalism conferences might have you believe, online news publishing is doing just fine, thank you. Newspaper companies might be missing their fat, monopoly-era profit margins but plenty of smaller publishers have found ways to stay in the black.

That said, every one of us would like to find new sources of revenue for our publications. That’s why so many of us are taking a long look at Groupon and similar services. Now, I’ve only used Groupon as a consumer, not as an advertiser nor as a publisher. But, based on my experience as a consumer, here are a few ways that I believe an entrepreneur could improve upon Groupon.

Better targeting

I don’t drink, so every Groupon offer I get for discount wine, beer and bar drink specials goes straight into my trash folder. Why waste the bandwidth sending this stuff to me? Many consumers click the link to unsubscribe if they get too many of these badly matched offers, reducing the market pool for the service.

Sure, Groupon’s got millions of users and won’t miss those who opt out because they don’t want stuff such as liquor deals. But if you’re trying to compete with Groupon, this is an area where you can do better.

Based on the offers I’ve been getting in my in box, Groupon’s target demographic seems to be relatively young, urban or suburban singles – or at least married consumers without kids. Lots of the aforementioned liquor offers, along with spa, sports, fitness and restaurant deals. I’m not seeing deals targeting parents in need of products and services for their children. Nor am I seeing ads targeting older readers, including retirees.

An entrepreneur who employs a local sales force to sell across demographics Groupon’s missing could yield a larger market share – if that business backs up its sales effort by collecting good demographic information from its audience. Ask about age, family, needs and interests when a new user signs up. That way, you won’t waste their time – and risk an unsubscribe – by sending a non-drinker wine offers. Or by sending a childless reader an offer for a day care trial.

Viral distribution through social media

If you’re going to take on Groupon, you’re going to need to find a way to get more consumers in your market taking up your offers than are taking up Groupon’s. As any start-up online publisher knows, the most cost-effective way to spread the word about anything online is to get your readers to do your promotion for you.

Make it easy for your readers to redistribute your offers to their friends and family who might be interested in the deal, too. After all, if you’re trying to target better than Groupon, who knows better if a deal will appeal to someone than a friend or family member?

Any offer should include one-click forwarding, Facebook liking and retreating, plus an invitation to send it along to someone else in the community who might be interested. And when those friends and family members respond, they should be invited (or required) to sign up for the service with their preferences, too.

Reward process for successful distributors

But simply making referrals easy won’t be enough to establish a successful viral marketing campaign for your coupon service. You’ll need to provide an incentive and reward for readers who redistribute deals, too.

Obviously, such a system should reward users only for coupon purchases by their referrals, instead of bulk-forwarding offers. And to further discourage spamming, the reward shouldn’t be cash, points or anything else that accumulates indefinitely. The highest reward could be based on achieving a high percentage of sales to referrals, though this would require some pretty heavy tracking on the publisher’s end.

I’d reward consumers for buying a certain number of deals within a certain time period, and for referring a certain number of sales. The reward could be access to additional deals, or an extra discount on selected “regular” deals. (Creating a named “club” for people who reach this level and get the extra offers would help reinforce the reward, as well.)

Get creative. You always should be looking for ways to reward your most faithful advocates, whether it be those who promote coupon deals, submit great blogs or comments, or refer new readers to your website.

Don’t forget to consider what makes Groupon-like services appeal to local businesses, either. There’s no up-front cost to merchants, with a guaranteed number of takers if a deal goes through. A certain percentage of those customers won’t redeem their coupons, either, offsetting the cost of the discount to those who do. And those who delay redeeming their coupons after buying them essentially provide free cash-flow to participating merchants. Ultimately, though, having too high a percentage of customers who don’t redeem their coupons on time threatens the market pool for group coupon services. A smart publisher secures the long-term viability of this type of service by emphasizing deals that build relationships over quick sales that might not be redeemed.

The point is… there’s no need for any news publisher to be afraid of something such as Groupon. Every great idea can be improved upon. And, more importantly, every great execution of an idea could be executed even better. Always be looking for opportunities to do better than your competition. Only when you stop trying to beat the competition are you certain to fall behind them.

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If you’d like to go more in-depth learning about how to build a successful online news publishing business, be sure to apply for the 2011 KDMC News Entrepreneur Boot Camp. It’s a free, intensive training session in digital entrepreneurship, led by faculty from USC’s Marshall School of Business and Annenberg School for Communication and Journalism. Here’s more information and how to apply.

Finally, happy holidays to everyone from OJR. We’ll be taking our annual vacation for the next week, returning with new articles the first week of January. Happy New Year!