When Groupon first hit the scene it put the spotlight on a massive new market and inspired countless copycats. But many local businesses lost money with the Groupon deals model which often requires losing money on the initial offer in hopes of making it up on additional sales and return visits.
Sadly, however, that often doesn’t happen. Now a new deals model is emerging based more on the concept of “yield management.” Yield management (YM) is a fancy term that basically means using tactics and strategies to maximize profit in a given circumstance. The idea here is to improve the deals model so local businesses can realize a profit immediately – not at some distant point in the future.
Services Using the New Model
The deals delivery app LeLoca (www.leloca.com) and popular online travel community Air B&B (www.airbnb.com) are two examples of services that use the YM approach. Both help merchants realize more profit from their goods and services by connecting consumers to them via mobile devices and other technology.
In the Groupon “loss leader” model, the merchant offers a large discount, has no control over how many people will use it or when, and then must pay Groupon half of the proceeds. One criticism of Groupon is that merchant deals are not highly-enough targeted (beyond city or geography) and that most buyers only want a quick discount and never return.
The airline industry is a perfect example of how yield management works. Owning and flying planes is expensive. Once a flight is scheduled, the airline incurs the costs no matter what. This is partly why airlines charge so many different prices for the same seat. They gauge (through sophisticated YM tactics) the maximum that customers are willing to pay at any given time, and try to charge exactly that.
The new generation of deals services tries to do the same thing for local businesses by using technology to connect people with goods and services that are already available (like empty airline seats) and might otherwise be wasted. For example, LeLoca, a free smartphone app, uses the Internet to connect consumers with nearby businesses that are offering real-time, geo-targeted deals when they have open space to fill.
Reaching Customers When you Need Them Most
“LeLoca gives the merchant the opportunity to bring in additional customers right when they need them via a discounted offer,” says LeLoca CEO Douglas Krone. “They have complete control over what they offer, the area that the deal will be offered in and when it will start and stop. Merchants get the customers right when they need them, thus maximizing profit and minimizing waste.”
Other deals companies operating on this concept include Savored, ScoutMob and kgb Deals. The following services are also finding success:
An app that allows users to hire a car at the touch of a button – connects professional, licensed drivers with people who need transportation. Uber does not provide cars itself, but rather works with existing car-for-hire businesses that make use of its technology. The app can pinpoint an exact location and then send a ride, utilizing the cars and drivers that would otherwise be idle or driving empty vehicles.
Air B&B (www.airbnb.com)
A fast-growing business that connects travelers seeking accommodations with places that have an open room, apartment or home. Airbnb provides hosts with the opportunity to earn money on an otherwise open space and provides travelers a chance to stay in unique places for less money than a hotel.
ScoreBig Daily (www.scorebigdaily.com)
Uses a Priceline-style model – lets users view same-day tickets for various events and pick the price they want to pay. Once a ticket is sold and a purchase is shared on social media, ScoreBig Daily reserves seats nearby so friends who purchase tickets can sit together. The average ScoreBig Daily user saves 42%.
Started as an app for real-time traffic updates but also offers real-time gas prices and discounts in the driver’s immediate area. Users can search for fuel in the area and compare prices, as well as get access to real-time deals being offering by gas companies who have partnered with the app. Waze also lets users post gas prices that they find so others can take advantage of them.
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About the Author: Daniel Kehrer, Founder and Chief Content Officer of BizBest Media, is a senior-level leader in digital media, content development and online marketing with special expertise in startups, SMB, social media and generating traffic, engagement and leads. He holds an MBA from UCLA/Anderson and is a passionate entrepreneur (started 4 businesses), syndicated columnist, blogger, thought leader and author of 7 business and financial books.