Come Find Us at The Daily Deal Summit 2012

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We’re excited to announce that we’ve been invited to exhibit at this year’s Daily Deal Summit here in New York City, which takes place April 17-18.  Where is the daily deal industry heading? Where is Groupon’s stock price heading?  Has the mobile revolution finally arrived?  These are just a few of the topics that will be explored at the industry’s de facto annual conference.  We at Couptivate hope to showcase some of the new and exciting initiatives we’re working on as well.  If you’ll be attending the Daily Deal Summit, please come find us!

Groupon’s Real Competition Is Not Who You Think It Is

Conventional industry wisdom pits Groupon in a major battle with the rest of the daily deal market (primarily LivingSocial). But as deal sites seek to expand into a broader array of small business services, the competitive picture gets much more complicated. Groupon provides a prime example. The company has begun to realize the fruits of its recent acquisition spree (previously discussed by us here).

This week, Groupon released GrouponScheduler, which gives merchants the ability to offer online customer booking and appointment management and suddenly places the company squarely in competition with Opentable (and also begs the question as to why Opentable never expanded beyond restaurant bookings). Based upon their acquisition pipeline and our own conversations with those at the company, we expect Groupon to roll out additional services in the near future that will also compete with established email and social media marketing companies such as iContact and Constant Contact, review sites like Yelp and Zagat, and even Google Maps. Constant Contact, for one, is responding to Groupon’s impending challenge by launching SaveLocal, which layers daily deal functionality on top of Constant Contact’s email marketing platform. While SaveLocal may make sense from a logistical standpoint, the product lacks the massive audience that Groupon and other deal sites can offer merchants, which is a major draw. This highlights a larger vulnerability for these new competitors: deal sites have invested significant resources over the past few years in building out a massive user base and this built in audience should provide a significant competitive advantage, whether from a B2B or B2C perspective, as deal sites move into new products and services.

As the daily deal industry grows and morphs, we continue to analyze both internal data and industry reports in order to provide a broad range of strategic advice and insight. Please contact us at analytics@couptivate.com to learn more and follow us on twitter @couptivate for the inside scoop on what’s happening in the daily deal world.

How Is The Deal Industry Really Doing For Merchants?

It’s a question we get asked with regularlity at Couptivate.  Sitting at the crossroads of the daily deal ecosystem, we are well-positioned to assess and understand the ongoing health of the industry.

Merchant satisfaction is one critical element of the industry’s performance and there has been no shortage of press coverage (largely in anecdotal form) over the past 12 months on the perceived shortcomings of the daily deal model. The results of a 10,000 person survey this week by ForeSee, however, offer a very different picture of the merchant experience.

Merchant-centric daily deal criticisms typically fall into two broad categories:

1) Daily deals do not attract new customers. Instead, merchants are simply offering a subsidy to generate business that they would have received anyway.

In fact, 29% of the daily deal purchasers surveyed reported that they were either unaware, or were not currently a customer of the merchant, before redeeming the associated deal.  From the perspective of customer-creation, as the authors of the study point out, it’s also relevant that another 26% of daily deal purchasers reported that they visited the merchant infrequently and 4% of daily deal purchasers reported that they were former customers but did not plan to return to the merchant prior to the deal.  All told, these daily deals positively impacted 59% of purchasers, either by directly driving a new customer or by giving a casual (or former) customer an incentive to reconnect with the merchant and potentially become a frequent customer.

2) Daily deals do not generate customer loyalty.   These consumers are more interested in discounts than in discovering new merchants and they will not become repeat visitors.

Here too, the results of the survey highlight that running deals can be very effective for merchants.  A full 91% of daily deal purchasers reported that they had either returned, or planned to return, to the merchant.  Daily deals are largely creating repeat customers.

Given the positive customer acquisition and loyalty effects of daily deals, what accounts for the frequent press reports of merchant dissatisfaction?  We believe it stems from the combination of a number of factors:

A) Deal sites may be doing a poor job of educating merchants on the positives and negatives of running a deal, as well as the appropriate structures for such deals.

Though some argue that this is a function of misaligned incentives (i.e., deal sites want deals to run, with deep savings, regardless of whether they make economic sense for a given merchant), we argue that it has as much to do with the youth of the deal industry.  Deal site staffers are often as new to running deals as merchants, and therefore may not yet have the expertise to properly guide merchants in setting up deals.  This is a relatively easy fix: deal sites need to invest more in training and transparency.

B) Merchants are unable to perceive or measure the positive impact of daily deals on their business.

Because the effects on customer acquisition and loyalty are hard to measure, and may occur over a number of months, merchants often feel the pain of offering discounts (and sharing revenue with deal sites) upfront, with no perceived benefit in the short term.  The deal may play out in a matter of weeks, but the merchant payoff may take months, which can be a stressful experience. A number of deal sites, most notably Groupon, are taking steps to provide better measurables and data for merchants, which should help to tackle this issue.

C) There’s a Negativity Bias at play.

Much of our current understanding of merchant satisfaction is based on anecdotal experience, rather than analytics and data.  Reporting also tends to focus on merchant perceptions, rather than actual customer behavior.  Because of a documented human tendency to pay more attention to negative experiences, unhappy merchants are much more likely to report on their experiences, and to garner press attention.  Satisfied merchants, conversely, have little incentive to be vocal about their results, and in fact may be disincentivized in some sense because they don’t want competitors to run successful daily deals themselves.  Deal sites may need to do a better job of publicizing success stories and incentivizing satisfied merchants to share their experiences.

Overall, the ForeSee survey provides positive news for merchants and deal sites alike, but much work remains to truly optimize around the daily deal business model.

As the daily deal industry grows and morphs, we continue to analyze both internal data and industry reports in order to provide a broad range of strategic advice and insight. Please contact us at analytics@couptivate.com to learn more and follow us on twitter @couptivate for the inside scoop on what’s happening in the daily deal world.

On Branding and the Deal

Branding may not be  the first thing that comes to mind when discussing the daily deal industry.  Getting a deal or a discount would seem to erode branding efforts given the degree to which consumers associate price with quality.   But as the industry begins to mature, the branding issue may be more complex than we think.

It helps to first understand what “branding” actually means in the daily deal context.   In our view, there are three established components, all of which blur together to some extent.  The first is a level of branding communicated by the deal site itself, in the form of copy, UI (e.g., are you using stock images?) and overall tone of the site.  The second component of branding is inherited from the types of offers, and the types of merchants, that are featured on the deal site.  The third component of branding is driven by the degree to which deals are “curated” by the deal site, which is really just another way of talking about the relevance (or perceived relevance) of the deals to subscribers.  By curating, a deal site adds value by picking and choosing deals that it thinks you’d be interested in, based upon its determination that a given merchant fits a special interest or is inherently interesting or “cool” (see, e.g., Thrillist Rewards).  The discount becomes almost secondary to discovery, and is replaced by the feeling of being an insider, or having access to exclusive shopping experiences.  In this way, sites that heavily curate are better able to shed the stigma of discount shopping and the quality perceptions that come along with it.  Curation improves branding because, as offers are more tailored, the deal site appears to have put more effort into finding such offers for subscribers. Finally, there’s a fourth branding element that may be emerging as well, the discount “halo effect”.  One such survey on travel deals that picked up on the halo effect was recently discussed in Forbes:

Those travelers using promotional channels [i.e., daily deal sites] for selecting hotel brands are more likely to recall that brand top of mind on an unaided basis than guests who used other channels. In addition, they are also more likely to stay at the hotel again and recommend that brand to friends, compared to those who used other channels.

“What we may be seeing is a ‘halo effect’ of the deal,” explains Rob Duboff, CEO of HawkPartners. “Consumers like the deal and, as a result, the brand.”

While the positive associations of getting a deal impact perceptions of the actual product being offered in the deal, it seems obvious that these associations would also impact perceptions of the deal site brand itself.

It should be noted that the above applies equally to merchants, as they also understand that deal site branding rubs off on those who work with them.

Enter Groupon Reserve, a recent product extension from Groupon, which aims to offer exclusive, high-end deals to loyal Groupon customers (and to attract high-end merchants who might be reluctant to work with them).  The very first thing you’ll notice about Groupon Reserve, which is invite-only, is that its UI  bears an uncanny resemblance to Gilt City, a well-known, luxury-oriented deal site.  Groupon Reserve’s deal inventory is also very similar. But it’s unlikely to be that simple to tap into the high-end market, given the way consumers perceive the Groupon brand at this point. In the traditional retail world, once you have an established brand, it can be exceedingly tough to jump to a new end of the retail spectrum.  Imagine, for example, the challenges that Wal-Mart or Target  would face if they attempted to extend their brand into the luxury market?

Target, in particular, makes for an interesting comparison.  Target has had some recent success attracting higher-end shoppers by launching low-cost lines by luxury designers.  It’s unclear, however, whether this is really a case of Target improving its brand or luxury designers lowering theirs.  But does it really matter? Target may simply care about attracting a new retail segment, regardless of its impact on overall brand perception.  Groupon may have a similar perspective on Groupon Reserve.  In addition, the relative youth of the daily deal industry and the fact that Groupon is exclusively on the web may make consumer perceptions more malleable in their case.

As the group buying industry grows and morphs, it can be overwhelming to keep track of deal purchases across different sources. That’s where we come in. Sign up for a free account today at Couptivate.com and we’ll organize your deal purchases for you.

We also continue to analyze both internal data and industry reports in order to provide a broad range of strategic advice and insight. Please contact us at analytics@couptivate.com to learn more and follow us on twitter @couptivate for the inside scoop on what’s happening in the daily deal world.

Acquisition to Activation

Acquisitions have long been a central focus for Groupon.  Initially, the company grew its user-base (and its sales force) largely through acquisitions of smaller deal sites, both in the U.S. and abroad.  Given the highly competitive and fast-moving nature of the deal industry, these types of acquisitions made sense for Groupon as a way to rapidly grow and distance itself from the rest of the pack.  At this point, the company has perhaps begun to hit a point in its growth cycle where it’s more effective to focus on activation of existing users than to aggressively seek out new subscribers. After all, it’s active users (rather than subscribers) that generate revenue.  Interestingly, Groupon appears to have embraced technology as a key tool in activating users.  Recent acquisitions have been aimed at reducing the friction involved in using a deal (OpenCal), making deals more social (Mertado, Campfire Labs) and improving its ability to target deals to users (Adku).  The shift in acquisition targets may also represent a recognition that, while the business model and practices at the core of Groupon’s daily deal business are not incredibly defensible against competitors, technology can be.  The ability to personalize deals for users is particularly important from a revenue perspective, because, presumably, it directly impacts the number of deals a user purchases.  And while social validation (i.e., you are likely to want what your friends want) is a nice piece of the puzzle, the ability to leverage historical, personal data (i.e., you are likely to want what you’ve bought in the past) is more promising.  We’re using similar types of data to provide Couptivate users with better deal recommendations.

As the group buying industry grows and morphs, it can be overwhelming to keep track of deal purchases across different sources. That’s where we come in. Sign up for a free account today at Couptivate.com and we’ll organize your deal purchases for you.

We also continue to analyze both internal data and industry reports in order to provide a broad range of strategic advice and insight. Please contact us at analytics@couptivate.com to learn more and follow us on twitter @couptivate for the inside scoop on what’s happening in the daily deal world.

LivingSocial and Groupon are Coke and Pepsi (but that’s OK)

Apple and Microsoft. Coke and Pepsi. Groupon and LivingSocial?  Casual and professional group buying industry observers alike would agree that the latter two companies belong in the same sentence.  LivingSocial’s CEO, however, disagrees. Attempts to lump Groupon and LivingSocial together, he says, remind him of early perceptions that eBay and Amazon were indistinguishable.  Whether you think the analogy is apt or not, it raises an interesting question.  It seems difficult, at least given where they currently are, to draw an effective distinction between these companies.  But is that such a bad thing? We believe that the unique characteristics of the group buying industry mean that the similarity between Groupon and LivingSocial isn’t a major issue.

As LivingSocial and Groupon begin to implement their long term visions of becoming “local commerce platforms” and “online to offline” businesses, it makes sense from both a B2B and B2C perspective that different types of local merchants have vastly different needs and branding requirements, a number of which may be incompatible with the rise of a one size fits all solution.  Given that, there will continue to be a need in the market for a variety of different group buying sites which, although following a similar model, execute in a very different fashion and serve very different clientele, both on the merchant and consumer sides.

This brings up a larger point: we are now conditioned to the idea that the online world is often winner-take-all (see, e.g., facebook, Google, eBay). Group buying, however, represents a distinctly new type of online business, particularly as companies in the space lead the convergence of online to offline commerce.  We assume, perhaps incorrectly, that this new hybrid space will exhibit the zero-sum characteristics of the online world, but take a moment to think about how many facebooks there are in the offline world. Companies like Walmart and McDonald’s obviously come to mind, but do they truly match the dominance of facebook?

All of this is to say that the local commerce market is both huge and diverse.  Each local vertical (and each individual merchant, to some extent) has distinct business and marketing needs.  Many merchants’ individual needs may be incompatible with one another.  One obvious example surrounds brand equity management.  A high-end merchant, for instance, likely has branding and marketing needs that would be undermined by working with a group buying site that caters to lower-end merchants.  The point is that there’s room for LivingSocial, Groupon, Gilt City et al to coexist, without the pressing need to be something radically different from one another.  An auction site is an auction site. A book seller is a book seller.  The group buying industry is fundamentally different because of the diversity of local commerce relative to the aforementioned industries and the unique, not-quite-online, not-quite-offline characteristics of the space.

As the group buying industry grows and morphs, it can be overwhelming to keep track of deal purchases across different sources. That’s where we come in. Sign up for a free account today at Couptivate.com and we’ll organize your deal purchases for you.

We also continue to analyze both internal data and industry reports in order to provide a broad range of strategic advice and insight. Please contact us at analytics@couptivate.com to learn more and follow us on twitter @couptivate for the inside scoop on what’s happening in the daily deal world.

Why Bank of America’s Foray Into Daily Deals Might Make Sense (despite having a terrible name)

In the race to better target daily deal purchasers with relevant offers, data on purchasing habits can provide a significant competitive advantage. It’s no surprise, then, that banks, sitting on arguably the most comprehensive user data, are now testing the waters of the deal industry. The move makes sense, in theory, though there are a significant number of open questions.

Bank of America is the most recent, and largest bank to launch a daily deal initiative, BankAmerideals. Customers who enroll in BankAmerideals will receive targeted deals based upon the bank’s analysis of their debit and credit card transactions. One critical distinction between BankAmerideals and traditional daily deal programs is that BankAmerideals’ discounts are not given at the time of purchase. Instead, customers receive a credit on their next statement. From the perspective of consumer psychology, we question whether the fact that discounts come in the form of statement credits diminishes the appeal of BankAmerideals. Some of the allure of daily deals is built around a sense of immediacy and scarcity (both in time and availability). In contrast to most deal purchasers, BankAmerideals participants will have to wait up to a month or longer before they realize any benefits, and may feel compelled to check their bank statements more than they otherwise would in order to confirm that they’ve received a credit. While these distinctions may seem trivial, in the aggregate they add a significant amount of friction to the deal process. Will this friction be outweighed by the increased relevance of BankAmerideals’ offers? There’s loose precedent on this: American Express has run a number of promotions recently which utilized the statement credit discount model, with, anecdotally at least, good success. The AMEX promotions, however, differed in a key respect: they were available from a huge pool of merchants and users were not required to choose a specific merchant in advance.

Beyond the form of BankAmerideals’ discounts, there are significant questions as to whether customers will feel comfortable with their bank analyzing spending habits so closely.

As new sources of daily deals, like BankAmerideals, continue to proliferate, it can be overwhelming to keep track of your deal purchases. That’s where we come in. Sign up for a free account today at Couptivate.com and we’ll organize your deal purchases for you.

We also continue to analyze both internal data and industry reports in order to provide a broad range of strategic advice and insight. Please contact us at analytics@couptivate.com to learn more and follow us on twitter @couptivate for the inside scoop on what’s happening in the daily deal world.

Daily Deal Industry Consolidation? Patience Grasshopper.

Judging by both media headlines and some of the high profile deal site acquisitions over the past few months (including Gilt’s purchase of BuyWithMe and ReachLocal’s purchase of DealOn), you’d think that there was a considerable trend towards consolidation of the domestic market underway.  Based on a report published earlier this week by DailyDealMedia, however, you’d be wrong.

Overall, the North American deal market saw a net loss of only 49 deal sites (there are now 1,791), which equates to a 2.66% decline.  In fact, aside from the Asian daily deal industry (which is an entirely different animal altogether), the number of deal sites globally continued to grow.

Merchants also seem to be viewing deal sites more favorably. Over the last six months, merchants who had run a deal in the past appear to have become significantly more enthusiastic about running another deal.

With the plethora of deal sites out there (and no sign of the choices becoming more limited), it can be overwhelming to keep track of your deal purchases.  That’s where we come in.  Sign up for a free account today at Couptivate.com and we’ll organize your deal purchases for you.

We also continue to analyze both internal data and industry reports in order to provide a broad range of strategic advice and insight.  Please contact us at analytics@couptivate.com to learn more and  follow us on twitter @couptivate for the inside scoop on what’s happening in the daily deal world.

Deals of a Feather Flock Together

Chances are you’ve seen, at some point, a daily deal featuring a well known, national merchant that was too good to pass up.  These national, mass appeal deals unfailingly sell quickly and at a high volume.  Some examples include the Gap offer (445K sold) by Groupon in 2010 and the Amazon (1.1M sold) and Whole Foods (1M sold) offers by LivingSocial in 2011.  Besides massive sales numbers, theres’ something qualitatively striking about these deals: the typical merchant value proposition doesn’t seem to apply (more on this later).

Just how dominant are national, mass appeal deals?   We took a look at a random sampling of our own internal purchasing data* to gain further insight.

Unsurprisingly, the most purchased deals by our users involved national, mass appeal merchants. What was surprising was the extent to which these types of deals dominate, and perhaps skew, the daily deal market as a whole.  The deal most purchased by our users represented 4.3% of all purchases in the sample, while the top 20 most purchased deals cumulatively made up 20% of all purchases in the sample.  To put this in perspective, out of the 13,000 different deals run by deal sites in our sample, just .15% represented 20% of all purchases.

What’s happening here? An understanding that national, mass appeal deals are a different animal altogether begins to explain this phenomenon.  These deals are  run as loss leaders, typically with brand name merchants that have little incentive to offer such discounts.  It’s likely that deal sites themselves are financing a large portion of the cost of these deals in an effort to drive subscribers, PR and brand equity.  But there’s also something more subtle happening.  As we have discussed before (see here, for example), relevancy and targeting are the holy grails of the daily deal industry and a key component of continued success.   These mass appeal deals represent the concept of targeting turned on its head.   Instead of targeting users based upon individual tastes, deal sites improve relevance by looking at the aggregate tastes of the population and selecting the most popular, broadly appealing items.

There’s a downside: If you’ll recall, the daily deal industry has positioned itself to merchants (and users, to a lesser extent) as a discovery tool.  In a mass appeal deal, however, the merchant is so well known that there’s little to no discovery actually happening.   While not fatal to the discovery benefits / function of daily deals in the aggregate, it’s important for actors in the industry (investors, merchants, competitors etc.) to understand the major distinctions between mass appeal deals and normal deals and to contextualize such distinctions when evaluating a deal site or a particular deal strategy.  Besides skewing hard data, there’s an unquantifiable danger that mass appeal deals may train consumers psychologically to expect (and seek out) brand name offerings, particularly if a consumer first subscribed to a deal site in order to participate in a mass appeal deal.

National, mass appeal deals tend to sell out fast and we constantly monitor these great purchasing opportunities for our users so they don’t miss out.   We also continue to analyze our data to provide deal industry players with a broad range of strategic advice and insight.  Please contact us at analytics@couptivate.com to learn more.

Sign up for a free account today at Couptivate.com where you can easily keep track of your deals and follow us on twitter @couptivate.

*We looked at 35,000 randomly selected deals imported by Couptivate users.

Some Predictions for the Daily Deal Industry in 2012

2011, unsurprisingly, brought significant changes to the daily deal industry.  The push to mobile and the meteoric rise of new deal categories like travel (which barely registered on our radar at the beginning of 2011)  were just a few of this year’s trends. The coming year will invariably bring its own share of rapid change for the daily deal industry and we wanted to share some of our own thoughts on the trends and developments we expect to see in 2012.

Travel deals continue to surge.

The travel category had a monster 2011.  Consider that LivingSocial’s travel vertical (Escapes), booked 500,000 room nights (equal to roughly 10.4% of the nation’s total 4.8 million hotel rooms) through October alone.  Consider also the advantages over traditional (relatively speaking) discount travel channels like Priceline:  Curation, discovery and a push (i.e. email) rather than pull (i.e. a user has to visit and search for specific hotel criteria) engagement with users.  Finally, in an economy that is improving, but still weak, consumers may be looking to spend on vacations but still heavily focused on finding a bargain in the process.  All of which points to further growth for travel in 2012.

Niche sites present promising personalization opportunities.

For all the talk of utilizing technology, one of the most effective ways to provide users with better-personalized deals is by catering to niche and special interest categories, such as sports or childrens’ activities.  Users who register for Lot18 (daily deals for wine lovers), for example, send an unambiguous signal that they’re interested in wine deals.  Niche sites may also be better positioned to build brand equity and a perception of expertise because of their focus.  It is likely easier for Lot18, as compared to Groupon or LivingSocial, to convince its users of the quality of its wine recommendations.  Likewise, a niche site’s brand equity does not face erosion from featuring lower quality items from other categories (e.g., if a consumer sees a bikini wax deal next to a wine deal on Groupon, it may, consciously or subconsciously, impact the consumer’s perception of the quality of such wine).

Mobile is still ahead of its time.

Many of the largest deal sites launched mobile, instant deals in 2011, accessible via iOS or Android apps.  Merchants are able to specify the precise times of day (and days of the week) such deals are offered.  While potentially promising down the road, we don’t anticipate significant scaling of mobile deals in the coming year due to the simple fact that sufficient inventory does not yet exist.  Scaling instant deal inventory higher may also be challenging as it requires greater effort and self-service on the part of the merchant to set up such deals.

Deal sites Seek to add value to merchants in an expanding number of ways.

In an effort to find new growth initiatives, many of the largest deal sites will look to provide a greater array of small business consulting services, such as loyalty rewards administration.  Groupon, in particular, has recently made a significant number of technology acquisitions (such as OpenCal) with an eye to providing new types of services to merchants.

Gifting grows rapidly.

1 in 10 internet users planned to gift a Groupon deal over this past holiday season.  The growth of special interest niche sites, the diversification away from traditional deal inventory (like restaurant deals) and increasing familiarity and social acceptance for daily deals and gifting will continue to propel this trend in 2012.

The coming year promises to be an exciting one and we at Couptivate.com look forward to helping consumers (and other participants in the space) make the most of the opportunities presented.  Sign up today and discover how we can help you.

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