Save the Presses: What is Half Off Depot?
Brian Conley: Half Off Depot is a retail website that partners with newspapers and helps them dramatically increase revenue and profit margins.
STP: That’s assuming that newspapers still have a profit margin?
BC: Fair enough. But if they don’t have a profit margin, they soon will if they implement Half Off Depot properly.
STP: That’s a pretty bold statement.
BC: Yes, it is. But it’s not made lightly. I’ve seen what Half Off Depot can do for a newspaper first hand. In an economy where many newspapers’ revenues have fallen by 30% or more over the last eighteen months or so, The Sunday Paper in Atlanta increased revenue by 30% primarily thanks to Half Off Depot.
STP: Are you saying Half Off Depot is going to be the savior of the newspaper industry?
BC: Maybe. It saved The Sunday Paper. Our revenues and page count are up, we’re hiring, not laying people off, and we’re profitable. That’s saying a lot in this economy.
BC: Yes. And The Sunday Paper now has more readers in the metro Atlanta area.
STP: You made a bid to purchase Creative Loafing earlier this year, didn’t you?
BC: Yes. We made an offer to purchase the whole chain, which includes the Chicago Reader and the Washington City Paper.
STP: Is there still a chance you might purchase it?
BC: I’m not sure. The whole thing is working its way through bankruptcy right now.
STP: Back to Half Off Depot. Can you give a brief description of how it works?
BC: Well, it’s a trade program used to barter gift cards in exchange for advertising. A newspaper sells the advertisements to new or inactive clients. The clients provide advance payment in the form of gift cards, then the gift cards are sold on our website, halfoffdepot.com, for half price.
STP: And that’s going to save the newspaper industry?
BC: I know. I had my doubts at first, too. But, look, the world has changed. There’s a great book out right now called What Would Google Do? by Jeff Jarvis, which makes the case that we’ve entered what he calls the “post-scarcity economy.” And what that means as it pertains to newspapers is that, thanks to the internet, advertising shelf space is now super-abundant compared to the days when newspapers owned the only printing press in town and could charge a fortune for advertising space.
Whether they realize it or not, newspapers are not in control any more. The consumer is. And the faster papers acknowledge and embrace that fact, the better off they’ll be.
And Half Off Depot is the way to monetize this new reality.
STP: Why is that?
BC: Because it simplifies and clarifies the process of advertising. It is ultra-targeted marketing, and that is the way of the future.
STP: What attracts advertisers to want to pay for advertising with gift cards?
BC: First and foremost, because they don’t have to part with their most precious resource; cash. Second, most restaurants' and retailers' cost of goods and services averages between 30% - 35% of gross revenue, so Half Off Depot allows them to improve cash flow and profit margin at the same time. Add to that the fact that between 15% and 20% of gift cards never get redeemed, and it’s really a great deal for the advertiser.
STP: What attracts consumers to it?
BC: Because Half Off Depot customers get to eat and shop at their favorite restaurants and retailers for half price.
STP: That sounds pretty simple.
BC: That’s what’s so beautiful about it. And it’s a win, win, win situation. The advertiser increases cash flow and profit margins. The consumer realizes substantial savings. And the newspaper, through increased sales volume and a wider advertising base, dramatically increases revenue and profit margins.
STP: Well, excuse the skepticism, but it just sounds too easy.
BC: I didn’t say it was easy. There’s a difference between simple and easy, you know. The key is to implement the program in the right way, and that means building the right inventory. But the sales staffs of local newspapers are perfectly positioned to know what kinds of restaurants and retailers are popular in their community, and which cards will sell best.
In Atlanta, we now have over 130 advertisers on the site, and that's a pretty huge widening of The Sunday Paper's advertising base, I have to tell you. And the key thing about it is that, by and large, those advertisers would not be advertising with us if it weren't for Half Off Depot.
STP: How long has it taken to build that kind of inventory?
BC: One year.
STP: Isn’t there a fear of newspapers cannibalizing their cash business?
BC: Yes. But there shouldn’t be. And here’s why.
If a newspaper has a popular cash-paying restaurant signed to its 12x rate card at $1,000 per ad, the paper will receive $1,000 in twelve incremental installments. If the same restaurant insists on being a part of the HOD program, the paper will receive $18,000 in gift cards up front, which will be sold for half price, $9,000, through HOD.
A popular restaurant should easily sell 100 gift cards per week on HOD, selling out in three to four weeks. Then, the paper goes back to the restaurant and up-sells them on a bigger ad, a longer run, or both, in exchange for more gift cards – which is very appealing to the client because they are receiving additional advertising and it has cost them no cash whatsoever.
Also, the fact that their gift cards have sold out is proof positive that their advertising is working.
STP: If I can back up a minute. You said that the advertiser would pay with $18,000 in gift cards compared to $12,000 in cash?
BC: That’s right. We recommend the HOD rate be 1.5x the cash rate card. A separate HOD rate card is created utilizing the HOD formula showing that, by paying in gift cards, the client is only out of pocket between 45% and 53% of what they would be paying in cash.
As I mentioned earlier, the average cost of goods and services for most restaurants and retailers is between 30% to 35% of revenue. Therefore, using HOD, the actual cost of a $1,500 ad is between $450 to $525, which equates to only 45% to 53% of the $1,000 they would have paid in cash.
This method makes selling HOD advertising, well, easy.
STP: You said there’s a difference between simple and easy.
BC: You’re right. Simple then. But I will say this method makes selling HOD ads easier than selling cash ads.
And publishers have to realize how many more local advertisers are out there who will be willing to pay for advertising in this manner.
Of course, new car dealerships and major department stores are not particularly well suited for this program. Local restaurants and retailers, on the other hand, along with salons, spas, local entertainment venues, bars, cosmetic surgeons, and a whole host of other businesses are perfect for it.
STP: Half Off plastic surgery?
BC: Absolutely. And, lasik surgery, too. We recently sold two $5,000 lasik procedures for $2,500 a piece. That’s $5,000 we made, and it took less than two weeks to sell those two procedures on HOD.
STP: Okay. It sounds very interesting. Essentially, the newspaper’s readers are being rewarded with the opportunity to eat and shop, or get their eyesight fixed, for half price at the paper’s respective advertisers.
BC: That’s right. The newspaper, the advertiser and the reader are all in it together. It’s a community.
STP: But is there anything different about Half Off Depot than the other companies offering 50% off gift cards and coupons on the internet?
BC: Yes. There is. First, HOD was created specifically for the newspaper industry and the reason it works so well is because we've put a lot of time and money into developing the software and the support systems behind it. And this has resulted in a website and fulfillment company that is not only easier for consumers to use, but much cheaper, too.
The other companies I’m familiar with, that traditionally partner with television or radio stations, send the consumer to the television or radio stations’ website, not to their own website. Then the consumer must traverse that website to find the half off deals being offered, which are usually offered only one day of any given week. They are then sent to another website and, once there, they can usually buy only one gift card at a time for which they are charged an exorbitant shipping fee.
That business model is flawed for a number of reasons.
First, it’s too complicated. The founders of Google agonized over producing search results as fast as possible because, as they put it, “every millisecond counts.”
People get bored and, in this new reality, a retail website must be as user friendly as possible. Again, the consumer is in charge.
At Half Off Depot, you go directly to our website, find the gift card or cards you want, of which you can purchase as many as you’d like, and are charged a very reasonable shipping fee which, on average, is less than a third of what other companies charge.
STP: But don’t those television and radio stations value the added traffic to their website?
BC: Maybe. But they shouldn’t. They’re never going to create enough web traffic with a half off program to raise their advertising rates. What they should be concerned with is selling their Half Off inventory and, to do that, the consumer must be sent directly to the half off website.
With respect to their websites, and in addition to their print ads, what newspapers should focus on is advertising Half Off Depot and HOD advertisers prominently with click through ads – every day of the week.
If they do that, they’ll literally be able to watch their inventory move, which is exactly what happened with our partner, the Knoxville News-Sentinel, when they discovered that HOD opens up a whole new advertising base for their website.
Many local businesses are currently priced out of daily newspaper ad rates, but would like very much to take the bold step of advertising on the internet. Yet they are reticent because they don't necessarily understand it or trust complicated pay per click formulas. Half Off Depot provides these advertisers a way to test the web advertising waters without any risk because, if their gift cards don't sell, they aren't out anything. And when they do sell, the advertiser knows his or her ad worked, which is added revenue to the paper.
STP: One gift card at a time?
BC: It’s all about volume now. And that is something that all newspapers will have to recognize in order to stay or become profitable in the future. They can't hold onto old ideas like page yield. After all, the actual cost to print one page of a newspaper is quite cheap, especially for daily papers who own their own presses.
STP: But why does a newspaper need Half Off Depot to sell their gift cards? Can't they just start their own half off website?
BC: They could, but it would take them a long time and a lot of money to get the systems in place to handle it. And once they did have them in place, they could not do it nearly as cheaply as we can do it for them. We've already spent the up-front time and money working all this out, and we provide a huge amount of website and sales support to go along with the actual order fulfillment.
If any newspapers were to try to develop the program themselves, they would be looking at committing serious resources to handle up-front costs, plus hiring dedicated graphic designers and a staff of fulfillment personnel. Additionally, they would have to create the support software to provide real-time sales reporting, and the sheer traffic that we're already generating through HOD would take months if not years to duplicate.
You know, another tenet of the Google-age is that in order for a company to succeed, it really needs to know what business it's in. Newspapers are in the newspaper business, and Half Off Depot is in the gift card sales and fulfillment business.
It's for these reasons that the newspapers in Memphis, Nashville, Indianapolis, Jacksonville, and Louisville have all signed on with HOD in the last thirty days.
STP: So, you've told me that it's your goal to be a national network by the end of 2009. How do you expect to accomplish that kind of growth?
BC: Well, we're well on our way, adding ten cities in one month. Our philosophy is to focus on creating and maintaining a web community that allows people to save a ton of money while enjoying an enriched lifestyle, and to help newspapers increase revenue by partnering with us. We believe that, if we do these things to the best of our ability, the rest will follow.
For more information about Half Off Depot, you can e-mail Patrick Best at patrickbest@halfoffdepot.com.
For more information about Half Off Depot, you can e-mail Patrick Best at patrickbest@halfoffdepot.com.
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