In 2008, Mark Elisei signed up to put special deals on Restaurant.com for his Mt. Pleasant restaurant, Tasi Bites & Blends. The site offered discounts to consumers along these lines: You pay $10 to Restaurant.com, and you get a $25 coupon to Tasi that is valid on purchases of $35 or more.
“I was like, ‘OK, a little internet marketing never hurt anybody,'” Elisei recalls. A year later, having dealt with stingy customers who came for loss-leader deals and never returned, and after discovering the website’s new policy of never allowing coupons to expire, he decided he wouldn’t do any more business with Restaurant.com. A representative from the website called Elisei last week about posting some new deals, and Elisei’s response was markedly different than four years ago: “Oh, no no no no,” he said when asked about the phone conversation. “No no no no.”
The online-discount backlash has begun in earnest, and one Daniel Island entrepreneur hopes to pick up the deserters who are unsatisfied with the likes of Groupon.com, LivingSocial.com, and Restaurant.com. Steven Dolloff’s new company, InTown.com (formerly InTownDiscounts.com), features special offers from a wide range of businesses, but with a difference: They pay only $1 a month to post deals on the website, and customers pay a flat rate of $1 per deal. The discounts aren’t as big as the ones on the major-league coupon sites, but neither is the up-front investment for the customer or the risk of being trampled by a pack of rabid bargain hunters for the merchant. Recent deals on the site include 20 percent off all flip-flops at Parrot Surf and Skate, $20 off Flipper Finder guided kayak tours, and buy-one-get-one burgers at Big Gun Burger Shop on Tuesday nights.
And unlike with Restaurant.com, the merchant can set an expiration date on the coupons.
So far, nearly all of the businesses offering deals on InTown have been in the Charleston area, thanks in part to ads on local billboards and booths at major events, including the Cooper River Bridge Run. But Dolloff is hoping that once the word gets out, he won’t have to recruit new clients nationwide. He thinks InTown will attract users on its own with a do-it-yourself interface for posting deals and a ZIP code-based deal search engine.
And while the boneyard of the internet is littered with failed Groupon wannabes, Dolloff says InTown is based on the realization of exactly how Groupon and its clones fail to meet some merchants’ expectations. “I wanted to fix a broken model,” he says.
“The reason why most merchants are doing daily-deal platforms is they’re trying to generate more business because they need more cash flow,” he says. He thinks that most daily-deal websites come up short in two ways:
1. Many coupon sites create whole new cash-flow problems by staggering their payments to merchants for months on end. And even then, the website will often take a cut of as much as 50 percent, meaning that a 50-percent-off coupon for the consumer could effectively be a 75-percent-off coupon from the merchant’s perspective. With InTown, the only financial exchange between the merchant and the deal platform is the $1-a-month posting fee.
2. Some business owners, especially restaurateurs (including Mark Elisei), have found that the bulk of people who redeem online coupons in their stores are either previously existing customers or deal sharks who shop once and never return unless another killer discount is offered.
In a September 2010 Rice University study titled “How Effective Are Groupon Promotions for Businesses?”, while two-thirds of the business owners surveyed said their Groupon deals were profitable, one-third said they weren’t (42 percent of restaurants reported unprofitable Groupon promotions). Among that unsatisfied one-third, business owners said only about 25 percent of Groupon redeemers purchased products or services beyond the coupon’s value, and they said a mere 15 percent of the Grouponers came back to the business a second time.
Another important business-model difference on the consumer side: Whereas a Groupon deal only takes effect when a set number of people sign up for it, an InTown deal goes into effect immediately, even for just one customer. So, rather than wait for a posse of like-minded people to sign up for surf lessons at the same time, a person can make a $1 impulse buy and even store the coupon on a smartphone or on a Deal Card issued by the website.
The daily-deal malcontents are not hard to come by, at least among merchants. In the past year, media outlets have published a cavalcade of horror stories about deals gone awry: A bakery in London offers 75 percent off and ends up having to make 102,000 cupcakes at a loss of $20,000. A theater company in Columbia, S.C., offers half-price tickets to a Thursday-night performance and takes a big financial hit. An organic restaurant in St. Louis, Mo., sells 3,500 coupons, leading first-time customers to swarm the store; the demanding diners exhaust the staff and cause the kitchen to run out of all but four menu items — and then post negative reviews of the restaurant on Yelp.
When Groupon went public in November 2011, it was the biggest initial public offering for an American web company since Google, and stock prices shot up from $20 to a peak of about $26 within the month. But since reporting a fourth-quarter loss of $9.8 million in February, the company has watched its stock price crumble to a current bargain of just under $12. InTown launched its website in March.
With InTown, Dolloff says, merchants will not have to wait for the company to set up a site specific to their town. If a lone shoe store in a Midwest hamlet wants to start offering coupons through InTown, the manager can go ahead and set it up, because the site organizes its offers by ZIP code, not by city.
“There’s no reason for people to wait, like, ‘When are you coming to L.A.? When are you coming to Dallas? When are you going to New York?'” Dolloff says. “They can just do it.”