Interview with ThinkNear: What works and what doesn’t for Daily Deals

This past April, the TechStars accelerator unleashed 11 startups into New York City. One of those startups is ThinkNear, a New York City and Los Angeles based company whose API is much smarter than your average geolocation/daily deals mashup service.

Do you have an e-coupon in your morning inbox? Okay. How about a deal in your mobile pocket for a coffee shop that you happen to be walking by at that moment? Awesome. In contrast to the competition, ThinkNear is a B2B service that uses smart data to help local merchants drive foot traffic to their stores during slow periods so it’s a win-win for consumers and merchants. The technology pulls in data like weather, events and traffic to determine when to deliver mobile offers to nearby users. ThinkNear’s core engine figures out what discount to use, when, and where to put them.

Additionally, the platform agnostic startup integrates with mobile ad networks such as AdMob and Where to push out discounts to users, who then have a limited time to redeem their offers. ThinkNear even monitors the effectiveness of the ads to adjust its future promotions. ThinkNear’s API is currently being used by OnDemand World, TriBeCa, GeoQpons and CouponQueen.

ThinkNear CEO Eli Portnoy, along with his CTO John Hinnegan were first working at Amazon before they decided to jump into the daily deals space. When they first had the idea for ThinkNear, they spent several months unraveling the fundamental mistakes of daily deal sites, interviewing merchants on what works and what doesn’t work. We interviewed CEO Eli Portnoy on the 6 fundamental mistakes that daily deals sites make.

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1. Daily Deals only work if you are perpetually slow, need lots of customers, and are so far in the hole that you’re willing to take a huge price cut. If you are at near capacity, there are lots of cheaper, albeit not terribly effective, ways to get customers. The typical Daily Deal requires that a merchant give up 75% of the total value of their merchandise, which for simplification purposes is often much more expensive than driving customers via other traditional mediums. The benefit of daily deals is driving lots of customers quickly to get a quick but unsustainable infusion of cash. There is a reason GroupOn emerged during one of the biggest recessions of the century.
2. Repeat customers are rare. What is the one thing we know almost for certain about every customer that buys a daily deal? That they are subscribed to a daly deal email list, which means they get a new shiny deal every day to their inbox. How likely do you think any of these subscribers are to ever pay full price for a meal, a massage, or teeth whitening if they know they are going to get massive discounts on exactly the same services from someone else that same week?
3. Daily Deals are not a way to advertise. Those other people who see your daily deal but don’t buy it will never buy from you. Lots of merchants write-off the cost of daily deals by fooling themselves into thinking the exposure of being on a daily deal email to hundreds of thousands of customers will mean business far and wide outside of just those that purchased the daily deal. Seriously? You think someone who had the opportunity to try your business for 50% off last week but wasn’t interested is going to wake up today and say at 50% off it wasn’t what I wanted, but at full price I am totally game?
4. Breakage won’t save the day. On the one hand merchants believe that people will love them so much that customers will return over and over again, but on the other hand they pray that many daily deal holders won’t come and redeem their coupons at all. The problem is that as the Daily Deal market matures more and more, marketplace solutions are emerging like Lifesta to let customers unwind Daily Deals they were not going to be used to others who will. So even if the person who bought your discount doesn’t want it, don’t count on the free cash because someone who is even more of a deal seeker and wants a discount on a discount will scoop it up and still make you render services.
5. Revenue does not equal profitability. Daily Deals drive revenue, but what they don’t drive is profitability because most businesses don’t have 75% margins.
6. Daily Deals will not replace marketing plans. When used well Daily Deals are about a shot in the arm, but you still need a day-to-day marketing plan. The ultimate marketing solution for local merchants is near. The technologies are aligning with mobile and hyper-local targeting emerging, combined with the lessons learned from web advertising about analytical and data-driven approaches.

At the end of last month, ThinkNear announced that it raised $1.6 million in seed financing including investments from Google Ventures, IA Ventures, Qualcomm Ventures, Metamorphic Ventures, Real Ventures, ff Venture Capital, Zelkova Ventures, BoldStart VC and angels David Tisch and David Cohen of TechStars.

Portnoy will use the funds to grow his team and to expand business development. According to Portnoy, “it’s all about the right number of customers.” ThinkNear’s platform matches the number of customers sent to a merchant with how many are needed and works well for both thriving businesses and those just beginning. ThinkNear is easy to use for merchants and Portnoy believes its strategic deployment of coupons will encourage repeat customers more than other sites.

While B2B mobile marketing isn’t the most riveting topic of interest, ThinkNear may be onto something with its distributed discounts and location targeted marketing. If you own a business, and need additional customers, would you use ThinkNear? Give it a try and tell us how it works!