With the news this week that Facebook bought Instagram for $1 BILLION, a lot of people are asking, “How does Instagram make money?”
The short answer is they don’t.
At least not yet.
In a CNET interview, Instagram’s CEO Kevin Systrom explained how in the future the platform will be a perfect fit for display advertisers.
We’ve all heard the stories of small business owners trying out Groupon or Living Social offers, only to lose a ton of money in the process and not have many new customers to show for it.
It’s easy to get caught up in the hype and make a bad business decision. Indeed, lots of companies have.
But what’s the right way to run a Groupon?
I can think of only two.
1. To Acquire New Customers
And I don’t mean one-time customers who only bought because you ran a deal. I mean as a true customer-acquisition tool. The best example I’ve seen of this was with our recent CSA membership.
Membership is the key word here. Their offer was for half off your first delivery, but you HAD to sign-up for ongoing service to use it. Now it’s true I could cancel at anytime, but I think I’ll ride it out for a while and see if it’s worth it. And I imagine most other customers will do the same.
Excellent execution. The “cost” of the Groupon is pure marketing expense; an opportunity to reach new customers who would have never otherwise known they existed.
2. To Fill Capacity in a Fixed Cost Business
The only other time I can think of a Groupon being appropriate is when your business has fixed costs and excess capacity.
Think of an airline. It costs them the same to fly from SFO to JFK whether or not that plane has 50 people on it or 250. Collecting ANY revenue to fill those empty seats is better than nothing.
In the Groupon world, yoga classes are amazingly popular. But it makes sense; they have the same overhead for the studio and the instructor whether 5 people show up or 50 people do.
So they use the Groupon to fill their excess capacity.
Any other use?
Any other examples of the right way to run a Groupon-style promo? I think a lot of small businesses fall into the trap of offering a discount for discount’s sake. Great for customers but not necessarily so great for the bottom line.
Use FarmFreshToYou.com promotion code 6164 and put Nick Loper in the “How did you hear of us?” box for $10 off your first delivery!
Background
Last week we got our first delivery from “Farm Fresh to You”, a sort of organic fruit and vegetable subscription service.
The shipment came with:
- apples
- oranges
- strawberries
- avocado
- lettuce
- chard
- leeks
- radicchio
- carrots
- celery
- onion
Yeah I’ve never heard of that some of that stuff either. Sounds very healthy.
Benefits
As I learned a couple weeks ago, the biggest environmental impact of farming (organic or not) is the transportation to get it from the farm to you. In theory, you can reduce your food footprint by buying locally.
The Farm Fresh to You farm is in Capay CA, which is about 175 miles from here, so while it’s closer than the 1300 mile “average” farm-to-table distance, it’s still not super-local. Maybe we’ll be able to find something closer, or just hit up the farmers market come summer time.
Also, the company is making doorstep deliveries, which obviously isn’t as efficient as dropping everything off at one location, ie. the grocery store. But carbon emissions claims aside, it’s definitely convenient for me.
In addition, community-supported agriculture (CSA, the general term for this set-up) has the advantage of keeping money in the local economy, supporting sustainable farming, and consuming fewer chemicals.
Side note: If you want to get technical, all businesses are “community-supported.” It just might be the community is nationwide or worldwide. If the “community” stops supporting, the business dies.
Delivery
The farm offers quite a few levels of customization, in terms of what gets included in your delivery, how much food you get, and how often it comes.
Prices range from $25 to $55 per delivery. We’re signed up for a “regular mixed” shipment, at $31.50 every three weeks.
The Affiliate Marketing Pitch
Farm Fresh To You is using some smart tactics borrowed from the affiliate marketing world to drive new subscriptions. If new customers want to sign up for the service they can get $10 off their first delivery with promo code 6164, and if they say I referred them I get $25 off my next delivery.
Pretty standard referral bonus / customer acquisition stuff, but interesting to see it applied to this offline business model. This post is kind of a test to see if the page will show up in google if anyone searches “farm fresh to you promo code.”
Switch
By Nick | April 3, 2012
I randomly grabbed Switch: How to Change Things When Change is Hard from the library. I liked the last book from Chip Heath and Dan Heath so I figured I’d give this one a shot too.
It was a good read, but I had a hard time grasping the Elephant and Rider metaphor used throughout.
The case studies were excellent and really interesting though. If you’re facing some needed changes in your life or in your work, definitely worth checking out.
One of the best examples given is a car wash. The first set of customers got a punch card where every 8 washes earned them a free one. A second set of customers got a punch card where every 10 washes earned them a free one, but the first 2 were already punched as a “head start.” As you might guess, the customers given the head start became more frequent car-washers, even though they now logically had the exact same program as the other drivers.
What can you do to give your customers the perception of a similar “head start”?
The Chevy Volt, though expensive, is a cool piece of technology. Volt drivers go an average of 900 miles and 26 days between fill-ups.
So WHY do they show the car at the gas station in every ad? It pains me.
In print:
And on TV:
No One’s Buying
GM set a goal of selling 45,000 Volts this year. They’re on pace to move about a third of that number, and recently had to stop production to give dealers time to clear existing inventory off their lots.
Hardly the warm reception you’d like to see for a Motor Trend Car of the Year winner.
How to Sell It
Buying a Volt is a terrible financial decision, but that doesn’t mean it can’t be sold. People buy lots of dumb stuff.
Make a rational appeal:
- Get nearly 1000 miles between fill-ups
- Only stop for gas once a month
- Save $xyz on gas in a year
Make an emotional appeal:
- Own the latest and greatest
- Be green
- Support American industry
Sell the lease:
- Monthly payments lower than you might expect
- No long-term risk of having to replace a costly battery.
People buy cars on emotional decisions and try and rationalize them later. The gas station ads don’t make either an emotional or a rational appeal, which is partially why they’re not getting the job done.
The other problem is the car simply doesn’t save you enough money to justify it’s high price. And that’s a problem no amount of advertising is going to solve.
A few lines about who we’re friends with online and what we share with them.
I was there, all those wild Friday nights.
We grew up in the same town.
I was there when you met her.
We shared a class in middle school.
I was there when you popped the question.
But not in high school.
I was there for your beautiful wedding.
We weren’t friends back then.
I was there on your latest vacation.
I can’t recall the last time we spoke.
I was there when your child was born.
Would you recognize me if we passed on the street?
