White Paper

1. mindbodyPARTNERSHIPS
Mind Body Partnerships
White Paper
Spring 2011
Should A Health, Beauty,
or Wellness Practitioner
Do Groupon ?
A White Paper
Randy Marks
CEO, Mind Body Partnerships
Groupon®
is a registered trademark of Groupon, Inc.
© 2011 Mind Body Partnerships
®

2. mindbodyPARTNERSHIPS
Table of Contents
3 Introduction
4 What Do Practitioners Want?
5 Discovering Distance-To-Discount Ratio
7 What Do the Daily Deal Sites Offer?
11 Financial Postmortem
12 Conclusion
12 About Mind Body Partnerships
12 References

3. mindbodyPARTNERSHIPS
Introduction
American retailers of goods and services have long understood how
to drive impulse purchasing. Combining an attractive price and the
“call to action” of limited availability is a time-honored mechanism to
drive traffic and increase sales.
However, it is now so commonplace in America that we have all
become desensitized to it. The rapid proliferation of “Daily Deal”
sites, led by Groupon and countless others, promoting drastically
discounted goods and services has changed all that.
Instead of the “BIG SALE” discounts off artificially inflated retail prices
offered by most retailers, they offer massive and easily verifiable
discounts. Millions of people all over the world have signed up and
look forward to the “Deals of the Day” in their inbox. People are
actually purchasing all kinds of things they really don’t want.
As a network of health, beauty and wellness practitioners, Mind Body
Partnerships (MBP) has examined this phenomenon very closely.
Many of our practitioners have experimented with these sites.
The results have been decidedly mixed. It’s easy to cite the well-
publicized instances where things went horribly wrong. That is not
the intent of this paper.
We are here to examine how this recent phenomenon impacts the
health, beauty and wellness market segment both positively and
negatively. Health, beauty and wellness services are used and
appreciated by everyone. We all go to salons to get our hair cut.
And who does not love getting a massage or facial from a skilled
practitioner? These services are routinely offered on the Daily Deal
sites.
We don’t pretend to have all the answers. But we do know some of
the right questions practitioners need to ask.
What is it that practitioners are looking for? We look at this from two
perspectives. What is it they want in the near-term, and then, what is
the desired long-term outcome?
First, we will examine what a service practitioner wants, and then
we will look at what the Daily Deal sites are delivering against these
criteria.

4. mindbodyPARTNERSHIPS
What Do Practitioners Want?
The simple, short answer to this is a new, high-quality client that
converts to a long-term customer at a high percentage rate.
However, after eight years of marketing our practitioners to the
general public, we know it is more nuanced than this. We can
more precisely define a high-quality customer as someone who
is accustomed to paying a fair price for services rendered. If a
customer cannot afford the regular service price but is there because
it has been marked down by 75%, then the practitioner will likely
never see them again.
We also know that geography plays a major role in whether or not
someone comes back for a second visit. If someone drives 25 miles
to get a $39 facial, will that person travel the same distance again if
the price is $90? Our experience tells us they will not.
Service practitioners understand the fundamental truth that the
first-time client experience is always an exploratory visit. Was the
salon conveniently located for the customer? Was it easy to get
an appointment? Were they treated courteously? Did they like
the setting? Did they like the practitioner and service? And most
importantly, were they pleased with the outcome?
Assuming the answers to these questions are positive at the
conclusion of the first visit, then we are now at the moment of
conversion. Unfortunately, few practitioners have the tools to take
full advantage of the opportunity to convert that customer at the
moment they are most receptive.
If conversion of a first-time client to a long-term customer is in fact
the desired long-term result, then how does a “Daily Deal” initiative
drive this outcome?

5. mindbodyPARTNERSHIPS
Discovering Distance-To-Discount Ratio
The good folks at TechCrunch and Jiwire help us understand the role
of geography in consumer purchasing behavior. If the price/value
perception is strong enough, consumers will travel great distances.
As the price rises, the conversion rate lowers very quickly.
Discovering The Distance-to-Discount Ratio
When it comes to deals, the bigger the discount, the further
people will travel. While this may sound obvious, mobile
advertising company JiWire has some numbers to back it up.
JiWire has released a new study that evaluates consumers;
behavior when it comes to location-based deals and discounts.
In a survey of more than 3,000 respondents, JiWire’s results
show that the greater the discount, the further people will travel
to redeem a coupon or promotion. For example, for a $100
item, 55 percent of consumers are willing to travel 15 minutes
for a 10 percent discount. But 40 percent of respondents will
travel an hour for a 50 percent discount, and 28 percent will
travel two hours for a 75 percent discount. Essentially, higher
discounts motivate consumers to travel farther. But there
are limits to how far people will go. Even if you give away a
Leena Rao | Feb 4, 2011

6. mindbodyPARTNERSHIPS
Discovering Distance-To-Discount Ratio
product worth $100 for free, only 31 percent of people would
travel more than two hours to get it.
While many location-based promotions generally target
customers in an immediate vicinity or neighborhood, JiWire’s
data indicates that the opportunity to reach new customers
goes far beyond the check-in and can draw new customers,
even from more than an hour away, into stores,
This isn’t surprising data but it does suggest that location-
based deals can be targeted to users beyond just an
immediate vicinity.

7. mindbodyPARTNERSHIPS
What do the Daily Deal Sites Offer?
It’s understandable why businesses are taking advantage of Daily
Deals to sell their services at drastically discounted rates. The
siren song of a quick burst of revenue and new customers is very
tempting, especially when you see your competitors having apparent
success.
From the practitioner’s perspective, the “Daily Deal” might be better
referred to as the “Once A Year” deal. If you are a practitioner, you
are usually told you can only run on the site once a year.
The value proposition for merchants is as follows: “We will do all the
work and bring you hundreds or even thousands of new customers
with no money up front, and no cost or risk if the deal doesn’t sell.”
It sounds very attractive. It certainly seems less risky than spending
money on newspaper ads or sending out a direct-mail piece that
you cannot track or measure. Let’s face it, we all love a bargain
ourselves, and it’s hard to see the downside risk.
For the health, beauty and wellness practitioner, there is the
inescapable fact that personal services are not readily scalable. You
can only do one massage, haircut, or facial at a time. This is one of
the first and most common adverse impacts. Capacity planning is
imperative. Look at the performance of others on the site as a guide
to determine if you can handle a significant number of new clients in
a very short period. The old adage rings true, “Be careful what you
ask for because you might get it.”
With Daily Deal marketers, here is what you are really signing up
for: The Daily Deal marketers come into your business once a year.
They conduct a sale on your services at liquidation prices. They
promote it throughout the entire region and bring in hundred or even
thousands of bargain hunters that snap up your services. They tell
you that 50% of the proceeds are going to them because that’s their
business model. They also deduct their credit card expenses off
the top, and most have a 25% hold back for 30-60 days to cover
potential refunds.
The practitioner is left to immediately start servicing large
numbers of bargain hunters, akin to a “basketball going through

8. mindbodyPARTNERSHIPS
What do the Daily Deal Sites Offer?
a garden hose.” Very often practitioners must also deal with their
unhappy existing clientele who suddenly cannot conveniently
get an appointment. All this effort and disruption is based on the
expectation that some of these new customers will become long-
term clients at regular prices.
A spa owner recently reported their Groupon results publicly. Out of
400+ Groupons redeemed they had only a dozen people come back
after a four month period. A 3% conversion rate! Does it make
economic, strategic, or tactical sense for practitioners to essentially
subsidize 388 free spa services to get twelve new customers?
Using this example, let’s look at the math on a typical transaction. A
very common offer is for a facial, normally priced at $90. The deal
would typically be priced at $39. The 50-50 split means the salon
would receive $18 for each service. If Groupon sold 400 at this
price, they would pocket $7,200 for simply sending out an email and
processing the online payments. Even if the salon had a 70% profit
margin on the retail price of the facial, it still cost them $27 to deliver
the service.
At our estimated profit margin, it cost them about $9 out-of-pocket
times 400 redemptions to run the campaign. So they incurred
roughly $3600 in out-of-pocket expenses for 12 new customers.
That equates to a “cost of acquisition” of $300 per new customer.
This is ferociously expensive given what must occur to recover the
investment. At a $63 dollar gross profit margin on a $90 facial, the
salon will break even on this promotion at roughly the 5th full-price
facial each new customer purchases.
We see it a little differently. Think about it this way. They elected to
spend $3600 in cash and forego $25,000 in gross profit to produce
12 new customers. They really invested a total of $3,600 in cash
and $25,000+ in uncompensated labor. We think it really costs them
$2400 to produce each new customer. If this is a more accurate
depiction of the true economics, then at a $63 dollar gross profit
margin on a $90 facial, they will break even on each new customer
after their 38th facial purchase. The likelihood of this occurring is
very small.

9. mindbodyPARTNERSHIPS
What do the Daily Deal Sites Offer?
What is wrong with this picture?
If you are Daily Deal provider, absolutely nothing. Practitioners
should understand that Daily Deal sites are completely aligned with
the consumer. They have no stake in the long-term success of their
merchant partners. They simply move on to the next merchant
willing to make the same “Faustian” bargain. The relationship is
essentially parasitic with the practitioner as the host.
Now, there are probably lots of businesses that this kind of program
works well for. We are only talking about its application to health,
beauty and wellness practitioners who serve their clients one at a
time.
MBP believes the Daily Deal is an ineffective and very expensive
strategy that will never drive the long-term success of your business.
But we see a much larger problem with this, one that is far more
insidious for practitioners.
The Daily Deal sites are having considerable success in engaging the
health, beauty and wellness practitioners in a “race to the bottom.”
The Daily Deal sites don’t mind that the accepted pricing norms of
this community are cut in half, or more, as long as they receive their
50% cut of the proceeds.
What they don’t seem to realize or care about is that the pricing
norms are becoming so debased in the minds of the consumer that
millions of practitioners may be looking at a permanent reduction in
the perceived market value of their services.
We are seeing signs of a growing realization on the part of
practitioners that this is a very slippery slope indeed.

10. mindbodyPARTNERSHIPS
Revenue Split • 0 • 50/50
Customers • 300/yr. • 500/12 hrs.
Conversion • 30% • <5%
Discount • 50% • 75-90%
Disruptive • No • Yes
Frequency • Year Round • Once Per Year
Local Promotions • 300+ • 0
Local Customers • 100% • 20%
Secondary Referrals • Yes • No
What do the Daily Deal Sites Offer?

11. mindbodyPARTNERSHIPS
Financial Postmortem
Service Price Gross Sales Cost Gross Profit[a]
Conversion
Standard Sale: Facials (400) $90 $36,000 $10,800 $25,200 30%[b]
Daily Deal Sale:
For Daily Deal Site: Facials (400) $18[c]
$7,200 0 $7,200 100%
For the Practitioners: Facials (400) $18[c]
$7,200 $10,800 -$3,600 3%
Cost of Acquisition Scenarios For 12 New Clients
Scenario I: Out of Pocket Costs Only
Cost Cost Per New Customer # of Full Retail Facials for Breakeven
$3,600 $300 5 per customer
Scenario II: Out-of-Pocket Plus Uncompensated Labor
Cost Cost Per New Customer # of Full Retail Facials for Breakeven
$28,600 $2,400 38 per customer
[a] Estimated at a 70% gross margin
[b] Estimate
[c] 50-50 split against a $39 sale price

12. mindbodyPARTNERSHIPS
Conclusion
At MBP we know there are far more effective and lasting ways to
build a sustainable, referral-based marketing system.
To convert one-time “bargain hunters” into long-term customers
requires consistent execution and focus. As we’ve shown,
“Daily Deals” actually undermine customer conversion -- not to
mention profit margins. More significantly, they devalue customer
appreciation and perception of the high-quality services of health,
beauty and wellness practitioners.
MBP practitioners know that using best practices for lead
generation, conversion, retention and loyalty over time is the only
path to sustainable and profitable growth.
Randy Marks is the CEO of Mind Body Partnerships, a lead
generation, conversion, retention and loyalty program serving San
Diego’s finest health, beauty and wellness practitioners. Now in
its eighth year, MBP’s lead generation and conversion program
delivers substantial and measurable results year-round with proven
techniques to convert customers into long-term clients.
MBP is currently opening in the Orange County and Los Angeles
markets.
TechCrunch Article:
• http://techcrunch.com/2011/02/04/distance-discount-ratio/
About Mind Body Partnerships
Reference