New Deal of the Day Company Distinguishes Itself With Cause Marketing

Do what I did after learning about Cause Rocket. Take the palm of your right hand and put it 2 inches (about 5 centimeters) above and to the northeast of your right eyebrow. Then with a gentle push, pop yourself right there on the head.

At the same time utter the word. “d’oh!”

That’s what I did and said when I saw Cause Rocket, a Silicon Valley startup that has a deal-of-the-day business model like Groupon or Living Social or Google Offers, only without the margin-killing discounting or the brand-destroying offers of its better-established competitors.

But, importantly, with the addition of cause marketing.

We all know the stories and business models of these deal-of-the-day websites. Groupon was founded as The Point, a kind of social initiatives website which pivoted to become the Alpha deal-of-the-day website.

Groupon has a huge sales force which fans out across the country (and now the globe), approaching mainly smaller merchants and service providers in local markets to offer them a kind of Faustian Bargain. Groupon will advertise to its subscriber base a killer price for, say, $60 worth of meat for $30. (This was an actual deal when Groupon first started in my market that I availed myself of).

Groupon and the butcher likely split the $30 evenly, leaving both parties with $15 each. The deal isn’t activated until predetermined number of people put down their credit card number. LivingSocial, Google Offers and the myriad other competitors offer small variations on the Groupon business model. For instance, Google Offers doesn’t have a local sales force the way Groupon does.

You don’t have to think too hard about the challenges these kinds of deals pose for local businesses. My butcher got a tremendous boost in terms of traffic. He was betting that once people were in his shop that they’d buy stuff outside the terms of the deal or become repeat customers, because every Groupon redemption actually cost him money.

That is, because of his cost structure and the way the deal was structured the Groupon promotion was a classic loss-leader.

Now Groupon and LivingSocial will say in response that I'm talking about this in the wrong way. Every business has customer acquisition costs and $15 per customer is probably not bad for butcher shops.

But it’s only a good business move if in fact the promotion turns a Groupon buyer into an ongoing customer. Otherwise, $15 is just the tip of the customer acquisition cost iceberg.

Here’s how Cause Rocket is different.

Suppose you are a masseuse and your normal service is $50 an hour. At Cause Rocket you set up a page and determine your offer. Let’s say that you decide on 40 percent going to the literacy cause First Book. Forty percent of $50 is $20. There's no upfront fees for doing any of this, which is a huge advantage for small merchants and service providers who've been burned by advertising in local newspapers or radio and TV.

When someone signs up for your offer, Cause Rocket takes $50 from the customer’s credit card and deposits $20 to the charity’s account. Cause Rocket takes 3.75% for its fee and 3.75% for credit car processing with the rest going to the merchant. In this example that would be $2.25 for Cause Rocket and the credit card fees and $27.75 for the masseuse.

Cause Rocket doesn’t have a sales staff and so it’s relying on charities to serve basically in an affiliate role to recruit new merchants.

If there’s a weakness in Cause Rocket it’s here. The charities that are pretty good at cause marketing is a relatively small list, perhaps five hundred. Even so, I’ve long expect that there’s a Pareto effect at work among these cause marketers; probably the top 20 percent of those 500 cause marketing charities account for 80 percent of the dollar value of all cause marketing. And those 100 charities are much better at working with big companies than small ones, where Groupon and LivingSocial and, presumably, Cause Rocket will live.

The only notable exception that comes to mind are those hub and spoke charities, like the American Cancer Society or the American Diabetes Association, that have a headquarters and then some number of regional or even local offices. Those kinds of charities tend to do a lot of event production and spend a lot of time in front small businesses. Cause Rocket would be perfect for those kind of charities.

All that said, Cause Rocket is one of the coolest cause marketing concepts I’ve come across.

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