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In the past few years there has been an explosion of third party marketing solutions for local businesses. Among the most impactful are promotions from Groupon and LivingSocial, which can drive thousands of customers to a business in a short period of time. Meanwhile, services like Opentable and Savored can drive very targeted off-peak traffic to restaurants. With all these new solutions (as well as the glut of social media and digital advertising options), there has never been more marketing channels available for local business.
Given the large number of options, the challenge facing many local business owners is determining which tool is right to solve their specific problems. Although it may be tempting to “outsource” marketing initiatives to a third-party service, a well-executed internal marketing promotion can often be far more effective — and more sustainable.
The most popular internal promotion among restaurants is happy hour. To get a sense of how happy hour compares to daily deals, we did a case study analyzing the point-of-sale data from a restaurant that has consistently run both happy hour and daily deals for more than a year and half. From April 2011 to October 2012 this business ran three deals and has had an active deal and happy hour every month.
Over this 19-month period, the deal traffic makes up a very significant 17% of their Gross Sales (before subtracting the discount and deal service commission), while Happy hour traffic only makes up 8% of Gross Sales.
But when you look at cash flow (which removes the discount and deal service commission), it is a very different picture: deals make up 10%, while happy hour makes up 9%. That means that 3 deals promoted to millions of people by a third party service drove about the same level of cash flow to this business as their own internal happy hour promotion. That is powerful.
It’s also important to consider that as a small, popular restaurant, this business reaches maximum capacity several times per week. This means it’s also relevant to consider which hours of the day these promotions contribute to most significantly.
The graph above shows that happy hour contributes specifically to the hours of the day that are otherwise the slowest, driving critical off-peak traffic that so important to restaurants. The deal traffic, however, is distributed across several periods of time, many of which are already busy.
The message here is not “deals are bad,” or even that they cannibalize existing sales. The takeaway is that internal promotions can be crafted to solve much more specific problems. When executed effectively, they are much better at accomplishing the specific goals of the business. Although third party marketing services have become increasingly popular over the last several years, business owners should never underestimate the power of a good internal marketing promotion.
Eli Chait is the founder and CEO of Copilot Labs, a San Francisco-based company that analyzes restaurant POS data to provide operators helpful recommendations for how to run more effective marketing promotions. Prior to founding Copilot, Eli graduated from UC Berkeley with a degree in Business Administration and worked as an associate at venture capital firm Alsop Louie Partners.