CLIP AND MORTAR; Dot-Com Tries New Online Coupon Angle
By JENNIFER BELLANTONIO
Kurt Lohse has a new take on the online coupon business,a slippery segment that’s already claimed a lot of lives.
The direct marketing veteran founded Santa Ana-based CouponMaker.com last year. The twist is CouponMaker lets consumers download coupons for stores they want to shop in.
“We’ve managed to localize the Web,” Lohse boasted. “With a few clicks you can get a real savings for a real world store.”
CouponMaker works by having shoppers choose the participating store they want to shop in and enter the amount they plan to spend. Stores tell them the discount they can receive, and direct shoppers to an outlet nearby honoring the coupon.
Shoppers print the coupon and present it to the merchant. In some cases, they can go to the retailer’s Web site and buy online. CouponMaker’s retail partners include Petite Sophisticates, Casual Corner, Big O Tires, Subway, Papa John’s Pizza and GNC.
“We really allow (retailers) to give any interested consumer a choice no matter where they want to spend their money,” Lohse said.
“That’s an area where a lot of Web services, marketing companies and even other online couponing companies” have had trouble in the past, said Lohse, who counts 11 years of direct marketing experience.
The targeted approach hooked South Pasadena venture capital firm Citadel Capital Management Group, which gave CouponMaker $3 million in first-round funding. The funding should get the dot-com to cash-flow break even in 12 to 18 months, officials said. Citadel concentrates on companies that don’t need multiple rounds of funding to get to profitability.
“Unlike some Web business, you can focus advertising. I think that’s one of the keys,” said Matthew Fragner, Citadel’s director of investments.
According to Fragner, the “coupon dot-com area is littered with the wreckage of companies that haven’t quite made it.”
Rivals include Chicago-based CoolSavings Inc., which was delisted from Nasdaq in November, and Cupertino-based BrightStreet Inc. Other competitors include coupon mainstays that have ventured online, such as Garden Grove-based Money Mailer LLC and Largo, Fla.-based Val-Pak Direct Marketing Systems Inc.
But Fragner contends CouponMaker stands out because it’s using the Web to drive people to stores, which “will be attractive” to both consumers and retailers, he said.
Still, Fragner is cautious: “None of us have a particularly accurate crystal ball.”
CouponMaker’s success largely depends on the number of retail partners it can attract. So far it has 87.
Stores pay CouponMaker a fee to be listed on the site. That fee varies with the number of locations the retailer wants to list. A mom-and-pop shop with one store would pay $19.95 per month. A large chain would pay $2 per store.
CouponMaker also gets revenue from direct e-mail marketing services, where it sends out mass coupons via the Internet. It also gives retailers the ability to tailor coupons, or feed them through a multitude of marketing channels, such as banner ads, mall kiosks and wireless phones,for additional fees.
“We’re a lot more than just a Web site,” Lohse said.
Hak Su Kim, owner of Bust-A-Game, a small video game retailer in Fountain Valley, said he is happy with CouponMaker’s results so far.
Kim said he has paid up to 50% more for traditional direct marketing campaigns that yielded the same response as CouponMaker’s lower-cost program.
“It was an obvious choice for us,” he said, adding it took a bit of time for the promotion to catch on.
Getting the word out about its services is one of CouponMaker’s challenges, according to Tony Cherbak, partner in the consumer products group at Deloitte & Touche LLP’s Costa Mesa office.
“They’ve got to get their name out so people will know about their site,” Cherbak said.
As it is, “You’d basically stumble across them,” he said.
CouponMaker said it has no plans to spend a big wad on marketing,a tactic that burned many dot-coms.
“If you remember the Super Bowl ads of two years ago, people got the word out in a really broad fashion and went out of business shortly thereafter,” Citadel’s Fragner said. “That alone doesn’t do you any good.”
CouponMaker has to offer people something on the site that’s worth coming back to, according to Fragner.
The company has partnered with other online players, such as American Greetings Corp.’s greeting card site, and Mypoints.com Inc., which specializes in member rewards and incentives.
“As we gain more affiliate partners, we gain in our exposure,” Lohse said.
The company, which has not turned a profit, expects to hit cash-flow break even in the next 12 to 18 months, according to Lohse.
“We have a long way to go. But this is a pretty revolutionary concept that’s going to take time to build out,” Lohse said. “When it does, it will catch on fairly quickly.”
For now, CouponMaker is “keeping lean and mean,” Lohse said. It employs nine people in a 2,700-square-foot office. It also has built a patent-pending technology system that takes a limited amount of overhead to manage, he added.
With the system, retailers can manage their own coupon programs from their offices. That “takes a lot of pressure off of our shoulders,” he said.
As CouponMaker seeks to grow its retailer base, Fragner said it’s better that it attracts more “good-sized retailers” than one big brick-and-mortar store.
“It’s kind of like going fishing on a small boat. You want to catch only the fish that will fit your boat,” Fragner said. “Catching one that’s huge is just going to sink you.”
