By Matthew Moskowitz
After seeing recent reports of the overall local advertising industry numbers, we thought it could be valuable to take a micro approach and get some real data from one savvy (in our opinion) local business owner. Here is a case study of the local advertising experiences of 16 Handles, Solomon Choi’s two year old self-service yogurt shop in the heart of the East Village in NYC. This study will tell you what marketing/advertising approaches he used, how much was spent, and the overall effectiveness of each. See below for key learnings based on this, and only this, interview.
PRINT is DEAD, Duh – Not surprisingly, and in correlation with all of the reports, Solomon’s feedback about print advertising was pretty bad. Having once spent about $750 for a 1/4 of a page in the Village Voice, and seeing zero tangible results has led him to the conclusion that he will “never” spend money on print advertising again. According to Solomon, “It is immeasurable, not cost effective, not convenient for the customer, and not viral.” Yikes.
Traditional Online Advertising – There are many ways to advertise online and Solomon has looked into several.
- SeamlessWeb and Delivery.com, which would have taken up to 30% of all sales they generated (with a built in minimum fee) were not a fit for 16 Handles based on its location. “Those services work really well for businesses in corporate areas where people are glued to their desk during lunch hour, not necessarily a characteristic of the East Village”.
- Yelp – Being an avid Yelp user himself, Solomon finds great value in the service and happily pays $150 a month for the enhanced page which gives him the ability to post a full photo gallery, a video, and list some promotions. “When people go out to eat, they check yelp to get an idea of what to order”.
- Buying Key Words – Having once spent $50/week on facebook ads, Solomon saw his entire budget sucked up in 7 days. “People were clicking on the ads from neighborhoods that were too far from my store. When I narrowed it down to just the neighborhoods I wanted to target, there was no way to track if those people clicking the ad were converting to customers. This isn’t an online purchase but one that requires the individual to make their way to a destination and make a purchase. “
- CitySearch – “I just don’t believe in paying per click”. Fair enough.
Social Media – Out of all the different types of advertising, his Facebook fan page is his favorite. In addition to it costing the least (free), it also provides the most feedback and interaction with his approximate 2,850 fans. Whether it’s hearing opinions on a new flavor, hosting a “Prettiest Yogurt” Contest, or by engaging fans with trivia questions for prizes, Solomon calls the interaction “priceless”. The facebook feed is directly linked to Twitter, as the content works the same in both mediums.
Location Based Services – Nothing is currently live on Foursquare but expect to see some Mayor specials popping up in the near future.
OCHO LOCO! – Back in September 2008, 16 Handles worked with http://www.8coupons.com/ to put on an OCHO LOCO! event (cost $ 500) where customers could get unlimited frozen yogurt for only 8 cents. The event was covered in several news outlets and sales reached record highs (at that time) for the following two weekends. You can see a full video of the event here.
Collective Buying – Over the past year and a half, 16 Handles has participated in 3 collective buying deals, and has mixed reviews about them.
- Living Social, March, 2009 (One of the first Living Social deals in NYC) – $5 for $10 worth of yogurt sold a total of 350 deals with 300 of them being redeemed (86%). There was a 60/40 split so 16 Handles received $3 out of every sale made. The lesson learned here was that many times these customers were redeeming the coupon by themselves by buying a huge $10 yogurt. The price wasn’t high enough to justify bringing in an additional person in order to get full value of the deal. So the next deal looked like this…
- Groupon, March, 2010 – $8 for $16 worth of yogurt sold 2,000 with 1,850 being redeemed (93%). There was a 50/50 revenue split. With customers now having to spend $16 in store, Solomon noticed, just as he expected, that people were bringing in their friends and families. “90% of the people who redeemed the Groupon ended up spending more then $16. It was very successful.”
- Gilt City, April, 2010 (Was one of the first Gilt City Deals included in their Beta launch) – $8 for $20 worth of yogurt sold approximately 300. The price was originally supposed to be $10 for the same $20 worth of yogurt but Gilt changed it last minute without consulting with Solomon. 16 Handles still received the same $5 for each sale, but the incorrect perception that the store needed to discount at rates of over 50% diluted the 16 Handles brand, according to Solomon. There were also very complicated measures that needed to be in place in order for them to track redemption. “Gilt City had a lot of flaws in their first week of launch, hopefully they’ve got them squared away”.
When evaluating the success of these deals, Solomon definitely feels like these deals have played a positive factor. “My sales are up 25% from last year and I certainly feel like these deals play a significant role in that. There are other factors also, but these deals helped.”
Here are some key learnings from my interview with Solomon.
- We’ve heard it time and time again, but you can see by the decisions made, that in this economy, the small business owner is increasingly avoiding traditional paid advertising and continuing to move towards free options such as Facebook and Yelp. In fact, the cheapest options, which also provide the greatest amount of customer interaction and feedback are becoming the most popular for small business owners (especially for Solomon).
- The advertising industry is increasingly becoming more fragmented. Instead of just print, TV, and radio, the most effective modern advertising platforms are Facebook, Yelp, Groupon.
- Business owners must have the right mindset when entering an agreement with a Collective Buying Site. The business must owner chalk up any expense associated to the deal to “Marketing”, instead of operating costs. (ie, Let’s do a Groupon instead of buying a print ad).
- Foursquare is increasingly gaining mindshare and small business owners are realizing the need to engage in this new medium.
If you would like your business featured on this blog, please contact me directly at matthew@8coupons.com.
OCHO LOCO! $8 Tickets (Reg. $65)