Published September 30, 2011
While the popularity of daily deals continues to surge among consumers, they aren’t without their faults. These heavily-discounted offers may bring new customers through a small business’s door, they often don’t turn into repeat business. But one startup in San Mateo, Calif., thinks it’s found a way to make the model profitable for both consumers and merchants.
“The daily deal space needs to evolve in a big way,” says John Vitti, co-founder and chief marketing officer at Mobile Spinach, a service that marries location and mobile devices to deliver discounts to consumers that never expire. “Our whol e purpose it to help local merchants reach better and new consumers.”
Daily deals are a double-edged sword for some business owners. Small businesses of all walks have complained about consumers coming in only for the one-time deal and never returning. On top of that, once a deal is posted, they get deluged with hundreds of patrons in a short time span, sometimes requiring them to hire more staff, which can make them lose money on the deal.
What local merchants really want “are paying customers delivered to them on a silver platter,” said Vitti. Founded in 2010, Mobile Spinach is available in 611 cities and has the venture backing of Blumberg Capital, Quest Venture Partners, LaunchCapital, and Transmedia Capital. The platform works like this: A consumer purchases a deal featured on Mobile Spinach or a third-party site and then gets the deal in the form of a voucher. Once the consumer pays for the service/meal/product they can redeem the deal and the appropriate funds are sent to the participating merchant.
Mobile Spinach’s deals do not expire, which gives users more flexibility and prevents merchants from getting slammed the days leading up to an expiration date, something that Vitti said can overwhelm a small business. “[Expiration dates] kills the local merchant’s product, staff and current customers.”
The discounts are distributed through existing publishers including CitySearch, FourSquare, Fruit Ninja, Super Rewards and other location-based mobile apps. Consumers will be walking down the street and see a real-time deal for the pizzeria around the corner. The deals tend to be focused on restaurants and bars because they offer more flexibility on when they can be used, instead of one-off deals for things like a spa treatment or bungee jumping that are staples on other daily deals sites.
“If I get a deal on my mobile phone for a massage treatment I’m not going to walk in and say let’s do this at 10:30 a.m.,” says Vitti. “Food is something people think about all day.”
Mobile Spinach keeps the deal prices on the low end, figuring people will be more inclined to spend $5 or $10 on the spot rather than $50 or $100, which is common with the leading daily deal websites. Merchants, according to Vitti, like the service because they get payment to their PayPal account as soon as the consumer makes a purchase with their credit card. Mobile Spinach doesn’t charge the merchant credit card processing fees and typically gives the business 50% to 60% of the deal proceeds, said Vitti.
Vitti added that the company works with small businesses to offer discounts that aren’t steep enough to cause them to lose money. For instance, if an average plate at an Indian restaurant is $12 the deal from Mobile Spinach may be for $4 for $8 off. “Consumers get enough to get excited and come in and try the restaurant. Merchants will make money on every deal.” Since the service is location based, consumers are more apt to become repeat customers because they aren’t traveling across town to redeem a deal, he said.
What may be even more interesting to small business owners is that Mobile Spinach, which landed over 5,000 local merchants in four months, did that with zero sales representatives. Using patent pending technology that Vitti was reticent to explain, Mobile Spinach is able to intelligently offer merchants deal that take into account things like margins and peak and off peak times without a human element.
“That part is the secret sauce. It’s why we’re venture funded and why we have patent pending stuff,” says Vitti. “It’s like asking Google what their algorithms are.”