Case Study: Delaware Coffee Shop Sees 50% Return for Daily Deal Customers

The economics of daily deals can be difficult to manage for some small coffee shops and cafes, but Cleo Clarke seems to have made it work. At The Java House Café in Middletown, Delaware (pop. 18,871), Clarke has run promotions with Groupon and Deals In Delaware. She’s managed to turn 50% of those group coupon buyers into repeat customers. Clarke is now exploring Foursquare as a way to tap into her tech-savvy customer base — 90% of whom currently use smartphones.

What are some of the biggest marketing challenges you’re facing as a business owner right now?
Essentially, cost. As a small business, cost is a very big factor when it comes to advertising. Naturally, you always want to advertise to keep your business in the forefront of your customers’ minds, but at the same time, you’ve got to monitor your costs because you have overhead, inventory, and things that you have to maintain. Although a lot of advertising outlets have done their best in trying to bring down the cost, it’s still a challenge to keep it consistent. Let’s say a newspaper ad, for example. That right there requires consistency because people can’t just see your ad one or two times; it has to be something that they see repeatedly over a quarter. The whole repeat advertisements, that’s where the costs really start to set in and can become unbearable. The next big challenge is always trying to keep it fresh and different, especially in this day and age where you’ve got so many different ways, techniques, and outlets to advertise and market your business. If you aren’t coming with a fresh idea, then your business isn’t going to get noticed.

Where are you getting inspiration or fresh ideas for how to market your business?
We are based in Delaware, so what we’ve done is we will go and Google, “coffee shops in Seattle” or “[coffee shops] in San Francisco” to see what people are doing in different markets. Sometimes we’ll try to use [those shops] as a benchmark. We’ll say, “We’re not in Seattle, however, this idea that they’re using is really great,” so maybe we can tweak it and apply it to our specific market.

You mentioned running promotions with Groupon and Deals In Delaware. What other marketing vendors have you tried?
We have used Foursquare and Entertainment.com. We have not done LivingSocial, but I had a conversation with a colleague of mine today and she told me about Google Offers, which is similar. So, now that is going to be something that we will explore doing an online deal through. Groupon was one of our more successful deals that we actually ran.

When you talk about the Groupon campaign being successful, what makes a deal successful in your eyes?
The redemption rate, honestly. With Groupon, it was unbelievable the amount of people who prepaid for something they’ve never even had. That’s how it works, you’re paying for a service or product before you actually get to test it out or see it in person. It’s just amazing that people are willing to purchase an advanced meal from us and they don’t even really know if it’s going to be good. On top of that, the way it turned into repeat customers for us. Of the people who came in because of Groupon, over 50% turned into repeat customers. And then of course, it’s a domino effect because they were bringing in a friend or a relative to come and dine in our café with them. So that was amazing because it was a far greater reach than a traditional black and white ad in the newspaper.

Do you have any methods for tracking how many coupon buyers turn into repeat customers?
Because we’re such a small business, it’s really just seeing the people coming in again. We don’t have a large number of employees; it’s just the four of us. So it’s very easy to tell, “Okay this person has come in here before,” because we’re here all the time and we know people by faces. As far as Groupon, they do have the ability for you to track the redemption of the actual Groupon deal for the offer that you’re running, so you can see, from a metric standpoint, your redemption rate. For us, we’re just visually keeping track of our repeat customers.

Are most customer spending above their coupon amounts?
Most people spend right at their Groupon amount. They would throw in a tip here or there, but they pretty much weren’t like, “Oh, I’ve got this whole meal free, let me just go pay for an additional meal and I’ll give it to someone in my household.” No. If this deal allowed them to come in and not spend any money, the most they would come in and upsell is maybe paying for an additional beverage. For the most part, I’ve witnessed people trying to stay very close to their Groupon deal without having to come out of their wallets with anything extra.

Why do you think you’ve had success offering daily deals when other small businesses have not?
It’s funny because I did have a conversation with our next-door neighbor, which is a salon. I think [it depends] on the deal that you’re running. We’re a café, so if you enjoyed your meal, you’re bound to come back to have it again. For a service like a massage or hair treatment, for example, you typically won’t need to go back for that service for about three to six months. The window for you to be a repeat customer within a year is so small. It’s kind of like a gift and a curse because you’re running this deal and the customers are coming out for it, but at the same time, if you’re giving them a service or offering a product that they’re not going to have to return to your business for, then from a profit standpoint you’re not going to get a chance to make more money off of that customer. That’s like the salon next door; they offered a Keratin treatment as part of their Groupon deal. From what I understand, a Keratin treatment is something that a woman is only supposed to have every six months. That’s only twice out of the year that you’re going to see that customer if they really like their Keratin treatment. That’s where the whole hang up comes into play.

Did Groupon or Deals In Delaware give you any sort of information beforehand about what to expect?
Deals In Delaware did. Groupon just pretty much just explains to you how their program works. But with [Deals In Delaware], the person actually came out and reached out to us. We were able to get a little bit more education with regards to handling customers and their reactions to the specific promotion.

Did you learn anything in particular that helped you manage your promotion?
Nothing that we didn’t already know, which essentially is that given the economic situation of our country, people want more bang for their buck. They also want to know that there is value added within that. That was an educational lesson, but it also speaks to the times that we live in, so it wasn’t really something that was eye opening.

Where do you plan to go with your marketing in 2012? Are there any vendors or platforms that you’re interested in checking out?
For 2012, we want to make our website more robust and a little bit more interactive — especially because over 90% of our customers have smartphones, and they’re all on Facebook and Foursquare. We want to definitely make sure that our website is tied into all of that and [make it] more interactive by featuring an event calendar and things like that. We want to continue with hyperlocal marketing because Foursquare in particular is amazing; it becomes competitive with people trying to become the mayor of a particular location. I want to learn more about Google Offers, but definitely just making sure that our actual website is robust and interactive.

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This interview has been edited for length and clarity.