Better Approach than Groupon? A Denver Restaurant Case Study
Lynndell Epp is the founder and owner of Mail Masters here in Denver. Just this month he published an interesting case study about a Mexican restaurant in Denver.
This particular Mexican restaurant was slow. They needed more customers. They had tried multiple marketing programs, all of which had failed. (I’m not sure what they tried, but I wouldn’t be surprised if it involved coupons in a Val-Pak or something similar.)
Lynndell and his company analyzed the restaurant’s problems and how best to attract more business. Based on its location, they decided to target local businesses and build the lunch crowd.
To achieve this, they designed a unique direct mail program:
Direct mail was decided as the best method to reach local businesses in the area. We needed to use a one-to-many approach that would attract more than one visitor per business. This is a multiplier effect, and as you will see from the results, this is a powerful technique to use. Here’s what we came up with.
We developed a lunch bag mailer with a catchy “memo” and 20 “Tamale Bucks” enclosed in an actual lunch bag. The memo has a picture of 2 staff members and a message that asks the office manager to pass the Tamale Buck Coupons around or put them in a place where employees can see them.
I don’t know how much it cost to develop this direct mail program, but I imagine it was much less than it would cost to run a Groupon.
The way Groupon works, the business gets paid a chunk of cash up front. The business then runs the Groupon. If it’s a restaurant, it often involves offering 50% off the meal. But they’re actually making about 25% because half of the 50% goes back to Groupon.
It’s a strange system that lures in struggling businesses because of the up-front cash. But in the case of restaurants, they’re often forced to operate at a loss to fulfill the Groupons.
As Rocky Agrawal says, “For most of the cases I see with small businesses, I would advise against [offering a Groupon]. It is especially bad for restaurants, bars, spas and other service businesses.”
Other studies suggest that the people buying Groupons are either current customers of the business or people who are just looking for a deal. Which means Groupons either cannibalize your customer base or bring in “hit-and-run” customers who are unlikely to return.
That’s why I think the direct mail program described above is quite smart.
- It targets the right audience — people who are nearby and likely to come back.
- It uses a multiplier effect — one employee might bring one or two or three more to come to lunch.
- With a quality meal, quality service, and the proper follow-up, the restaurant can build a loyal customer base without operating at a loss.
Getting back to the case study… What were the results? Lynndell reports: “After mailing only 500 lunch bags, over 200 coupons have come in and more are coming in daily. That adds up to a 40% response rate.”
A 40% response rate is quite good. Imagine if the restaurant can get those 200+ customers to come back for lunch two or three times a month. They’d be doing much, much better than they were.
For many restaurants, I expect a strategic direct mail campaign like the one described here will be far more effective than offering a Groupon.
-Ryan M. Healy