Last year, San Francisco Bay-area chain Patxi’s Chicago Pizza pulled off one of the most popular Groupon deals ever, selling nearly 7,000 “$20 of food for $10” coupons.

But despite the promotion’s overwhelming success, Patxi’s isn’t sold on daily deals sites. “I don’t think we’ll ever do it again,” says Blaine Whitney, Patxi’s vice-president.

Patxi’s sales spiked immediately after the Groupon’s sale, and again when the coupon was set to expire, but the store didn’t see any lasting impact from the promotion. Whitney believes that such sites don’t provide merchants with the metrics to understand whether customers are new or returning, and he thinks that Patxi’s new customer acquisition was minimal. “It felt like a huge giveaway to our existing customers,” he says. Statistics back Whitney up.

The research firm ForeSee conducted a survey of 2,200 daily deal buyers that determined that 38 percent of the purchasers were already frequent customers of the business in question. Just 31 percent were brand new customers.

The daily deals industry — which includes big players such as Groupon and LivingSocial, and hundreds of smaller regional operators — is incredibly profitable: Groupon alone reported $760 million in revenue for 2010. But the deal isn’t always quite as good for merchants. In addition to providing a substantial discount to customers, you’ll also need to split the coupon sales revenue with the daily deals company. That can leave you with minimal — or non-existent — profit margins.

“At first you have an influx of customers, but your expenses keep going up because the vouchers cut into your profit margins,” says Carolyn Brundage, a partner at Indiana-based Smashmouth Pizza, who’s sold deals on both Groupon and LivingSocial. “It’s not a good long-term marketing plan.”

Instead, consider these alternative strategies for increasing sales volume without sacrificing your profits to a third party.

Craig Agranoff, owner of Boca Raton, Florida-based specialty marketing firm The Pizza Experts, recommends sending vouchers containing restaurant credit to potential customers within your local zip code. “It’s the same as a coupon, but psychologically, consumers feel like it’s a gift card, so they’re more likely to come in and use it,” says Agranoff. He claims that his clients who’ve taken this approach have seen redemption rates around five percent. “People spend well above the amount on the card,” he adds.

There’s no need to rely on outside services like Groupon to create a group-buying deal. Pizzerias can create their own promotions using white-labeled daily deal platforms, such as Deal Co-op. Agranoff recommends encouraging e-mail newsletter subscriptions by giving away free slices of pizza to passersby who sign up, and promoting your deal offer on social media services such as Facebook and Twitter. When creating your deal, you can set your own “tipping point” to ensure that enough people will purchase the deal to make the promotion worth your while.

Collaboration can increase your marketing power even more. Rachel Rogers, who represents Nacoochee Village Tavern and Pizza in Helen, Georgia, combined forces with other local business owners to create vacation packages for customers from outside of the local area.

“Our coupon will?include something like a two-night stay, a dinner at our pizzeria and an attraction for a discounted price,” she says. “We send this out to our e-mail contacts and hopefully get some bites, bringing in customers?locally, but also providing enticing circumstances for consumers outside?of the local region to visit our pizzeria as well.”

Many pizzerias have found success by using mobile marketing services such as Foursquare and GoWalla, which allow you to advertise special deals for people who “check in” at your establishment at no cost to you. Offering free drinks when 10 people check in at the same time, for instance, can promote group sales; and providing free pizza to the person who checks in most frequently (dubbed “the mayor” in Foursquare) will inspire customer loyalty and a friendly competition to claim or keep the top spot. “We like Foursquare because when customers check in, it means they’re endorsing your business to their friends,” says Brundage.

You can also take advantage of mobile location-based services that send coupons to customers and issue “push” notifications to remind them of the coupons when they’re in the vicinity of your establishment. “It helps you get access to people who don’t even realize you’re there,” says Agranoff.

Also important is promoting yourself to the local community. Whitney says that Patxi’s Chicago Pizza has done well by marketing group discounts to local companies such as LinkedIn. “They’ll buy 100 pizzas at a time,” he says, and employees will often come back with their friends and family to purchase pizza on their own.

Sponsoring a local kids’ sports team is a winning strategy as well, says Agranoff. “When you get 20 seven-year-olds into your establishment for a pizza party at the end of the season, they’ll all be begging their parents to bring them back to your restaurant.”

There are a variety of gauges a business can use to measure the success of its marketing. But to really measure you must first know your goal. Was it money in the bank, build a database, find a new customer or create TOMA? All are noble goals of a marketer. To declare success we have to go out and measure, but take the extra step and do the hard work ahead of time by thinking through what really matters, what is actionable and what drives the business. Not doing that extra work first and tossing together a collage of gauges is not only lazy, but also dangerous to your business due to the level of distraction it creates. It is akin to using an airplane’s instrument panel to drive a car! Are you ready to market? Be forewarned in advance that great marketing can kill a business.

Wait, what? How so?

Allow me to explain: many companies spend countless dollars marketing a sub-par product and mediocre service. But if you promote a ‘dog’ more people will know it’s a ‘dog’ no matter how it is portrayed. Marketing campaigns are important, but they can backfire if your staff isn’t trained to provide exemplary service. And, even if your staff is trained to provide great service, if they aren’t trained to sell effectively, your marketing ROI isn’t living up to its potential.

When (and only when) your restaurant is running at the optimal level of service, you can then let loose great marketing. Until then, it makes no sense to attract more guests into a restaurant that doesn’t wow the customer. The best scenario? Fix the product, make it outstanding, then market it. You can implement numerous marketing strategies such as TV or radio ads, newspaper coupons or signage. These external methods, however, aren’t nearly as important as what you do internally to get guests coming back.

The biggest asset in business is relationships (better than cash because they can be turned into cash over and over again). It’s a new era in restaurant business, the era of Relationship Marketing. If you haven’t jumped on the bandwagon yet, do it now.

Mag Retelewski, president and founder of Clarteza, a Chicago-based marketing consulting company, says, “The way a consumer experiences each marketing element has changed dramatically, especially in the areas of promotion, communication and advertising. The consumer is in the driver’s seat, and brands and services, including restaurant businesses, are switching from a ‘monologue’ with consumers, to a ‘dialogue’ where consumers directly engage with a brand or a product and collectively influence the overall state of consumer perception. Restaurant reviews on Twitter, Facebook or simply through word of mouth can make or break your restaurant, so treat your customers right and they will reward you; if not, they can break you.”

 

In this regard, our ROI is measured by the positive or negative buzz created by our restaurant. We must be invested in this relationship with the consumer to keep the buzz positive, respond to complaints, answer questions, address dietary concerns, tell your story and have the consumer embrace your culture. The No. 1 reason people will not come back to your restaurant is because they have encountered an attitude of indifference or unconcern by one or more employees. This accounts for 68 percent of why any restaurant will lose business. This is an issue that you can attend to by training on hospitality and the idea that the customer comes first! Build a relationship, boost your ROI.

We have heard it said time and again: ‘You get out what you put in.’ The National Restaurant Association reports that 52 percent of adults are likely to make a restaurant choice based on how much a restaurant supports charitable activities and the local community.

Retelewski adds: “Investigate the possibility of participating in an interesting event or promotion, something tied back to the community which can create some ‘buzz’ around your restaurant business that your customers will care about. Again, it’s about a bigger meaning and creating a conversation.”

Note this recent comment on my Facebook page: “I love Fox’s pizza because they have a great pizza, but I like the fact that they go out of their way to help out the community with fundraisers. That’s awesome. Thanks.” Here is someone who, along with his family, eats at my restaurant 3 to 4 times per week. Why? I have an established relationship with the family and that is reinforced by quality product and community activity.

So how does all this affect your bottom line? In its simplest form ROI is a calculation expressed as percentage:

ROI = [(Payback - Investment)/Investment)]*100

Your payback is actually the total amount of money earned from your investment in your company. Investment relates to the amount of resources put into generating the given payback. This is usually thought of as ‘how much did I spend on that ad?’ and ‘how much profit did I make from the sales it generated?’. In general it can be said that as long as the percentage is greater than zero your investment was good. Why? It is because our marketing goal is for long-term results. Even if you did not make your first million today, the foundation you are laying will produce greater results to build on during your next marketing campaign.

“Most important are fundamental marketing elements, such as defining your restaurant’s target market and positioning territory and the tailoring of your message to appropriate communication vehicles,’ says Retelewski. “Ideally, your marketing plan will be integrated, including multiple channels of communication to optimize your reach and allow for targeted messaging.”

Measuring ROI is a complex matter that can be approached in many different ways. Naturally, as a business we need to have a stable bottom line — we can also see that payback is a direct result of many marketing elements working together. You maximize your ROI when you and not just your message reach the consumer and touch their lives and their communities.

Scott Anthony is a Fox’s Pizza Den franchisee in Punxsutawney,PA.