Small Market Deals: A Talk with Deal Garden

The big destination deal sites such as Groupon and Living Social have developed sites in most of the 150 or so large and medium markets in the U.S. How about markets with populations less than 250,000? There are 84 markets with populations between 150,000 and 249,000, and 121 markets between 100,00 and 149,000.

The major destination sites already hit many of the medium-sized markets. But smaller markets have been zeroed in on by vendors such as Matchbin, working with local media. We’ve also been closely watching Deal Garden, a five person destination site in four small markets (Topeka KS, Sioux City, IA, Lawrence KS and Manhattan, KS) powered by Nimble Commerce. Two more Deal Garden sites are set for launch: Rochester, MN and WaterLoo/Cedar Valley, IA.

The rub against small markets is they don’t have the volume to do many deals. The deals they do have need to spread out over multiple days. Moreover, most residents don’t need to discover merchants in their tight-knit communities. Many are also spread out geographically, and less attractive, demographically. There’s also an interesting theory that consumers get into the deals mode when there is intense competition among many players.

But Deal Garden co-founder Pat Lazure, who previously founded WikiCity, tells us that the pros of a small town site may outweigh such negatives. Small town sites aren’t competing with 60 other deals sites, as in Boston, and you have a great word of mouth factor in smaller markets, he says. Moreover, consumers are very loyal with excellent open rates. He’s seeing a 33 percent open rate for emails.

It is also easier to grab market share with local media buys since media outlets are less numerous. A campaign he’s been running on Topeka’s WIBW-TV, for instance, has made giant strides. Ultimately, the gross proceeds per subscriber are many times what Groupon reported in its S1.

The negatives are there, too, he candidly concedes. Deals typically need to run three days, instead of one. Also, markets are jump-started with low cost restaurant deals, where average spending is about $11 or $12. While deal averages are up from $9 at launch, they are still less than half of the major destination sites, which might see an average over $30.

Lazure figures local small town consumers need to get acclimated to the deals culture. “Food first; salons and spas second; and sky diving last,” he jokes. Local merchants are also more likely to use deal sites to drive customers to new selections or to bring them back into the store rather than to get introduced to new consumers.

Yet Lazure rejects the idea that small markets might be ghettoized as simple, one deal-at-a-time Internet deal sites, even as the rest of the industry begins to move towards multi-deal, multi-channel with lots of services. They’ll get there, he says.

Lazure also says that it is also important for sites to be truly local. Some of the sites run by competitors in his areas have tried to batch several markets together in order to get volume. No one wins when deals are spread out beyond where consumers typically shop, he notes.