The Current Deal Model is So Broken It’s Scary

Last month we set out to uncover some of the not-so-hidden horror stories of the current deals model.

Being well acquainted with the damaging effects of this broken deal system, we knew we would receive some scary stories when we asked small businesses to share their worst deal experiences.

But of all these terrifying tales of lost business, disrupted service, and overall horrifying experiences–one stood out as a frightful example of all that is wrong with the model currently being offered by the big-time deal providers.

What went wrong…

Chikun Tsao is the owner of Melodia Grill, a contemporary upscale restaurant located just outside Philadelphia (Souderton, PA–to be exact.)

Last October Chikun, who opened Melodia Grill in 2008, was looking for a new way to attract new customers. That’s when she was contacted by a rep from a certain big-time deal provider and decided to run the only type of deal being offered at that time.

“We offered a half off discount–spend $25 for $50 at our restaurant,” Chikun recalls. “We worked with a rep and were told we would be able to finalize the details of our deal before it went out.”

But while they were permitted to offer a 50% discount on their upscale menu (because that’s the minimum discount allowed) they were in fact, not granted the final approval on the deal’s terms or conditions.

“People were supposed to be required to make a reservation if they were going to use the deal,” she recalls. “But because the deal went out before we had a chance to take a look at it, we were put into a situation we really weren’t prepared to handle.”

The impact of a horror deal…

It was not a good start to her deal experience.

Chikun did her best to explain to those who had purchased the deal how important it was to make a reservation. But despite her best efforts, crowds of people still decided to show up unannounced–many on the busiest nights of the week.

“We handle a lot of reservations on the weekends–typically seventy percent of our regular customers come in on Friday or Saturday,” Chikun explains. “We had a lot of people who were unhappy when they were told they would have to wait–it disrupted our entire service.”

What Chikun was dealing with was one of the most glaring problems of the broken deal model: a lack of control. As a result, businesses are being forced to deal with the aftershock of a deal that is designed, not by the person who owns and knows the business, but by a company that has never stepped foot in your store or restaurant.

“It got so bad that we actually had to call the police,” Chikun remembers one night when a customer refused to pay their full bill. “The commotion affected everyone: our staff, our customers, everyone.”

The aftershock…

But with every story, there must be an upside, right?

After all, these daily deal providers and their stockpile of contacts must have generated at least a few new customers for Melodia Grill … right? (Please?!)

“We haven’t noticed any people really coming back to dine with us again,” Chikun recalls. “But we also have no real way of keeping track because these customers weren’t paying us–they were paying the deal provider.”

Another flaw in the big-name deal model: businesses aren’t in control of customer information; the deal provider is. Which means when someone does decide to visit your place of business and redeem your deal, there’s no effective means for you to stay in contact or continue that relationship after they walk out your door.

Actually, for Chikun there was one way of knowing some of the people who had redeemed the deal, but it was by no means an effective one.

“Now, we’re dealing with all these bad reviews we had never seen before,” Chikun recalls. “These were people who didn’t know our business and had only come to redeem a deal.”

This is the type of feedback Melodia Grill had been used to seeing on Facebook and on local review sites. But when their deal went wrong they began to see unsavory reviews from unhappy deal seekers.

Rethinking the cost of marketing…

When it was all said and done, Melodia Grill had suffered countless weekends of disrupted service, an unnecessary burden on staff morale, a number of unsavory online reviews, and had attracted zero new customers.

But if that’s not bad enough, Chikun actually had to pay for this horrible deal experience.

The cost? After giving up $50 worth of items from their menu for $25, Chikun still had to pay the deal provider half of all the revenue generated from the deal. That meant for giving up $25 worth of menu items, Chikun was only keeping $12.50.

“If it’s something that brings in new customers and helps our business, I’m fine with the expense,” Chikun explains. “But most nights we weren’t even able to cover our food costs because of the deal and it hasn’t helped our business at all.”

Like Chikun, many business owners who decide to run a deal accept its cost as a necessary marketing expense. But when that expense brings more headaches and fewer customers, it’s hard for businesses to justify the cost.

There is a better way…

Melodia Grill wasn’t sitting idly, just waiting to hit the marketing lottery with her half-off deal.

Since opening in 2008, Chikun has worked diligently to get the word out about her business. From TV to print–she has committed a significant budget to marketing her upscale restaurant and even more of an effort to providing a memorable experience for each and every customer that walks through her door.

But the marketing tool that has been most effective for Melodia Grill has been much more cost-effective than anything else Chikun has tried.

“We use email marketing to communicate with customers on a weekly basis–educating people on the value of choosing organic dining options and offering different tips on living a healthy life.”

The Melodia Grill’s weekly emails are a valued resource for customers and food-enthusiasts alike. They often include weekly promotions–like a 10% off discount or bring value to their customers by including tips they can use and share with friends.

In three years of using email marketing, Chikun has grown her list to over 2,800 emails. These are customers Chikun says she has an established relationship with and who understand the quality service she provides.

“People like to keep up with businesses they enjoy and can easily communicate with,” she explains. “And when we do decide to offer promotions, we know when people are taking advantage of them because we know these customers.”

Her first SaveLocal deal…

Last month, before being selected as the winner of the Deal Horror Story contest, Chikun decided to give deals another shot. But this time, she chose SaveLocal, a new product from Constant Contact that puts business owners back in control of the deals they decide to run.

And this time, things went a little differently.

Instead of offering the strict half off discount she had done the year before, she decided to offer a 34% discount on a three course dinner for two. Because the deal was her own creation, she was able to create a special menu designed specifically for the deal–letting customers try two of their signature appetizers, entrees, and desserts.

Not only that, but she was finally able to control the terms of the deal–including the reservation requirement she had expected with her first deal, and an expiration date before the end of the year.

And because she was controlling the deal, she was able to offer it to her current list of email readers first, and then encourage them to spread the word by offering a bonus $5 coupon if they shared the deal through Facebook, Twitter, or email.

This is the deal Chikun created and ran using SaveLocal.

“It was a much different experience,” she recalls. “We didn’t get overwhelmed with people buying the deal but we knew those who did enjoy it would come back to dine with us again.”

With a less severe discount and more control over the terms of the offer–this deal was much easier on her bottom line. And because SaveLocal only charges $1, $2, or $3 per coupon sold (based on the type of discount which is being offered) Chikun actually got to keep the majority of her profits–paying only $3 for each $59 coupon sold. (Compared to a $12.50 “profit” with another deal provider.)

The moral of the story…

The model being offered by big-time deal providers may work for them–but it just doesn’t work for small business owners.

Chikun Tsao had been doing everything right when she made the decision to launch her first local deal.

In less than five years she had built a brand new restaurant into an award winning dining destination known for a quality of service that is only rivaled by the quality of the food on its menu.

Most importantly, she had built strong relationships with customers who would not only return to dine with her each month but who would also happily recommend the Melodia Grill to their friends and family.

It’s business owners like Chikun Tsao who should be in control and should benefit from the deals in which they run–not big-name deal providers.

That’s what SaveLocal is all about.

Want to learn more about why a SaveLocal deal is different than a deal from another deal provider? Here are 10 more examples of how SaveLocal has helped other small businesses take back control of their deals.

Never miss a post! Follow our twitter feed @ConstantContact