Using LBS to Help Merchants Manage Inventory

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As mobile becomes a more and more important element in the daily deals equation, it’s becoming clear that there are more potential elements to a location-based deal than your classic Groupon — and more ways for merchants to optimize those deals. Location-based deals platform ThinkNear is one such response to the challenge and opportunity presented by mobile. The service, which recently announced $1.6 million in funding, allows local merchants to set and modulate discounts on the fly based on real data (like daily levels of inventory, weather and foot traffic) and broadcast the deal to potential customers in the vicinity via banner ads on their mobile devices.

Street Fight recently caught up with the company’s CEO, Eli Portnoy, to talk about how the company helps local businesses maximize their revenue, and why the daily deal industry may be due for a shakeout.

What was the original idea behind ThinkNear?
In June of last year. John and I were thinking about the local space and some of the tools that could be built for local merchants. Basically, we saw what was happening on the daily deals space and we saw that the convergence of local and mobile was finally starting to happen. There were no really great tools that help merchants figure out the right way to use them, and that made it smart enough and optimized experience for them.

So we borrowed very heavily from yield management and the idea that when you have capacity constraints — as most small merchants do — you really want to optimize the pricing that you’re using to make sure you’re maximizing revenue. We wanted to go out and figure out how to make it happen at the local level.

Does ThinkNear’s platform work better for some businesses than others?
What we’re building translates better into some industries than others. What you’re doing with our system is you’re pricing at different levels — so for this to work you need to have pricing flexibility. If you’re in a small-margin industry, it’s very difficult to be able to be able to change the price of something, whereas a salon or restaurant has pretty large margins and they have pretty significant ability to reduce the price they offer.

We’re really focused on the restaurant, hair salon, and spa verticals to begin with. In those verticals, there are certain types of establishments that are happy to give a discount at all times to get new customers. These merchants are willing to be more aggressive in their discounts at certain points in the day than they are at other points in the day.

I’ll give you an example: There are restaurants that aren’t busy during lunch. They’ve got a couple days that remain open during lunch, and they are willing to give a 10% or 20% discount to get people in the door then — you can help them with that. But when they’re really slow – let’s say it rains on a specific lunch period and they become really slow — then they want to be more aggressive. We play into is the fact that not all discounts are created equally and not all times are equal — so we are helping them figure out what is the lowest discount they need to give at any given time in order to bring in customers.

Ultimately, [the daily deals craze] is a short-term phenomenon and I don’t think it’s sustainable. I think we’re going to see consolidation or a lot of smaller players dropping off because they can’t support the merchant acquisition costs.

Groupon Now launched two months ago – how does their space in the market impact you, and how is your model different from theirs?
The biggest difference where we’re really trying to focus on is intelligence. We’re trying to help merchants answer three questions which are: when they should discount, how much they should discount, and where they should place that discount. We think if we can answer those questions well then we will make them more efficient and help them make more money.

There are a lot of different channels and people who are trying to help local merchants by offering them another vehicle or another way to get discounts in front of consumers. Groupon Now is basically a way to get your discounts in front of more consumers. It doesn’t get to the heart of the issue or the heart of the problem we’re trying to solve, which is how to make it really easy for merchants to be making good decisions about discounting at all times.

Groupon gets criticized for not doing enough to spur customer loyalty.  Is ThinkNear focused at all on customer retention, or is it all about on-the-spot inventory clearance?
The reason Groupon gets so much criticism about their failure to convert these discount shoppers into repeat customers is that for a business to give such steep discounts, they are effectively taking a loss on that customer. The only way to make it viable is to make that money up in future purchases. Then if those customers don’t come for future purchases, then the entire model falls on its head.

Our model is about helping merchants maximize revenue. It’s about taking that excess capacity — or basically inventory that they wouldn’t be able to sell otherwise — and helping them sell it at a discount. So, every customer we’re sending them is profitable in and of itself.  We are definitely working with merchants to figure out how to help them convert these customers into repeat customers, because that’s gravy and just an additional benefit, but it’s not the core of what we’re doing.

What are the biggest problems small business owners have when they are approaching digital media?
There are a couple of challenges they have. The first is a typical merchant is very, very busy. They are essentially running an entire operation; handling payroll, inventory purchasing, and handling staffing — they are handling so many different things all at once. They just don’t have time to get really good at any of the online marketing tools that are out there.

The first thing is figuring out how to get to these merchants and provide them with a service that’s easy to use and takes the work out of the merchant’s hands and handles it for them. That’s the first really key challenge. The second thing is there’s a glut of tools out there that are being targeted at local merchants demographic. So, not only do they not have enough time to figure out any of the tools, but now there’s so many they are getting overwhelmed and not even trying to figure out how to use them.

That’s really where we come in. We help the merchants answer these three questions: when to discount, how much to discount, and where to place that discount. Doing that for them, we can simplify their lives tremendously and we can take advantage of different tools and channels that are out there.

Are you seeing fatigue among merchants over the daily deal phenomenon?
I definitely think merchants are starting to become weary of daily deals. They are getting so many calls every single day, and pretty much the only barrier to launching a daily deal service is having access to customer emails. We just saw that Amazon started their own daily deal service and they just took every email in the database and they just started sending them daily deals without an opt-in. Publishers across the web are doing it, and now you’ve got a plethora of different daily deal providers and merchants are sick of hearing from them

Ultimately, this is a short-term phenomenon and I don’t think it’s sustainable. I think we’re going to see consolidation or a lot of smaller players dropping off because they can’t support the merchant acquisition costs. So, when that starts to happen, we’ll have three or five or ten daily deal players and maybe you’ll have a bunch of daily deal niche providers – guys who are focused on the travel vertical, or eco-friendly vertical — then some of the big general players such as Groupon, LivingSocial, or maybe Google. When that happens, I think you’ll start to see a much more sustainable ecosystem.

This interview has been edited for length and clarity.