Columbus Entrepreneurs Chase Groupon's Success
The Chicago-based internet company Groupon is only two years old but it's rumored to be worth billions of dollars. It makes money by offering downloadable "deal-of-the-day" coupons to subscribers. Several Columbus entrepreneurs are trying to emulate Groupon's success on the local level.
"Intriguing" and "beautifully done" are words that Professor Rao Unnava uses to describe Groupon's business model. Unnava is a professor of marketing at Ohio State University's Fisher College of Business.
"It's a very targeted, very efficient way, of generating response, and therefore the model is really intriguing and interesting," Unnava says.
Groupon sends a daily e-mail to subscribers offering a deal; such as spend $10 for a $20 restaurant coupon. But a minimum number of subscribers must buy the coupon or else the deal is off.
Groupon is established in the Columbus market, so a local entrepreneur has a lot of work to do to catch up. That task does not faze Tanisha Robinson who talks about her Groupon-like company over a cup of coffee in a Short North restaurant. Robinson says that her site, Fudha.com, is only a bit like Groupon:
"With the deal-a-day model, yes, but actually we function pretty similarly to sort of restaurant.com meets QVC," says Robinson.
Fudha only works with independently owned Columbus area restaurants. Its system is similar to Groupon. Subscribers can buy $20 restaurant certificates for $10. But often there are restrictions, such as the times that a customer can use the certificate. Restaurant owners say they've seen an increase in business. Elizabeth Lessner owns several downtown Columbus restaurants and has been a Fudha.com participant.
"It's been a great way to bring in new customers who've never tried our restaurants before," Lessner says. "Giving them a great deal gets them through the door and often times they return."
For each $10 certificate Fudha sells, $5 goes to the restaurant, Fudha keeps $4, and $1 is donated to the Mid Ohio Food Bank. That $1 local charitable donation is one thing that sets Fudha apart from Groupon. And it just might be a reason to attract customers to the Fudha.com website.
"Our ideal customer is somebody who wants to make a difference in the community and support local businesses which is increasingly important," Robinson says.
Businesses say that, in the short term, they're losing money accepting half-off coupons. But there's a long range strategy at work.
"What you see is some really authentic pastries. Torte we see. We see a chocolate chestnut roll. That's a holiday special. We see a Yule log "
Anand Saha and his wife own Mozart's European pastries shop. Saha says that while the certificates hurt his bottom line, they do generate business.
"Every business has to have their own marketing plan and their own idea of how they want to bring their business up and reach out to people, and that is one way that we're doing it," Saha says. Instead of advertising in the local newspaper, Fudha really reaches to a lot of people and it's constantly hitting them, telling them, 'Hey, there's Mozart's out there.'"
That's one of the selling points that a pair of entrepreneurs is using. Jeff O'Neal and Dan DeMura are launching savingsboat.com. They're trying to sell businesses on the idea of listing with their internet coupon service. Partner Jeff O'Neal
"They don't have to spend big money to broadcast all over Central Ohio. Their cost for advertising is substantially decreased, and it lets them get in to where their customer is," O'Neal says.
Savingsboat founder Dan DeMura says this new method of online marketing is beneficial for all concerned
"The customer wins because they get the savings that they're looking for; the businesses win because they're looking for new customers. And this is a way for businesses to get their name out there to basically allow people to try their services. And then it's up to the business to earn that customer as a repeat business customer," DeMura says.
So while customers are saving money now, business professor Rao Unnava says merchants just might be betting on a future payoff.
"If a merchant wants people to try a product and puts them on Groupon, they're going to lose money, there's no question," Unnava says. "Is that the right thing? The answer is, it has to be based on a calculation that tells you that for somebody who tried my product there is a certain proportion of people who are going to come back again because they like it."