While the debate as to whether group buying as whole is a viable business model rages on post-Groupon S-1, there"s no doubt that these social deal things keep sprouting up — Yesterday someone introduced themselves to me as the CEO of a Groupon for moms (and yes I thought it was a good idea).
We"ve got Groupons for techies, a Groupon for Jews, what will there be a Groupon for next!? Wait, please don"t answer that.
Still it makes sense that people would want a piece of the action, as the size of the market in the US is estimated at $2.7 billion in 2012 (up from $1.1 billion last year). And to give you a sense of some of the players and their relative size, the folks at Flowtown have revised their original infographic to reflect the social buying boom.
What can we tell from the above? Well first of all that space is nascent and so are its physics; First movers aren"t necessarily rewarded. Woot, which was founded in 2004, currently has over 1.4 million unique monthly visits versus dominant player Groupon"s (which was founded in 2008 and pivoted to the model) 29.1 million. Mercata, which isn"t even on the graph, was shut down in 2001.
Current second runner up LivingSocial is around half the size of Groupon, at 14.3 million unique monthly visits, with 301 US cities to Groupon"s 182. Yeah that"s about 5% of the US population visiting the site monthly; Enjoy your teeth whitening guys!
Since filing for an IPO at a valuation estimated to be somewhere between $2 billion and the moon, Groupon has become the favorite punching bag of the press, taking some pretty hard blows over the massive sums it shelled out to build a customer base -$280 million - and a sales force - $108 million.
I see some important lessons to be learned from group buying"s leader. Groupon rightfully deserves credit for bringing the daily deal market to where it is today - a multi-billion dollar market predicted to reach $3.9 billion by 2015. And in any case, just because group buying"s Goliath is starting to teeter hardly means the deal industry is doomed.
It"s just getting smarter.
As the armor of horizontal sites like Groupon and LivingSocial begins to dent due to aggressive contract terms, saturation by deal seekers, and shaky financials, market forces are shifting in favor of deal sites from local and niche publishers with an audience, brand authority and sales team already in place. In contrasting these sites with Groupon, we can learn a thing or two from the group buying heavy-weight.
* Lesson #1: Back to Basics: Daily deals should boost local business, not bury it.
Established media companies with a digital presence have long-standing relationships with local advertisers and understand their business" needs. Knowing the merchants" promotional past, niche publishers are more motivated to structure deals that are truly successful for the business and are eager to keep them advertising in the future.
Publishers can also provide merchants additional advertising options and coverage. Whether a local TV station, newspaper, radio outlet, or new media publication, publishers can build custom packages of online and on-air promotions to supplement a merchant"s feature. With local publishers, deals can be one piece of an advertiser"s larger total marketing mix and serve as a online to in-store metric to track overall campaign success.
* Lesson #2: Quality vs. Quantity: Publisher audiences are loyal and high-affinity.
Any type of traffic isn"t necessarily profitable traffic. Audiences of niche and local sites are, of course, smaller. But, which is more appealing: 300 quality customers with a high repeat potential or 3,000 bargain hunters? And with the enormous size of Groupon"s email list, many of its subscribers may be existing customers: U.S. Toy Co. in Kansas City, Missouri estimates that up to 90% of its Groupon voucher holders were current customers.
In contrast, Tomlinson"s Pet Store in Austin, Texas, who ran with local publisher 365ThingsAustin, saw 46% more new customers than the Groupon merchant. And, unlike some Groupon voucher holders, buyers of the 365Austin Tomlinson"s deal spent an average of $26.10 after their discount - 133% above voucher value.
Both deals were sent to email subscribers around the same time of day and featured popular merchants who are well-known in their cities. So, what was the difference? Audience motivation. Groupon subscribers sign up primarily because they want discounts on services; regardless of merchant or area, if it"s 50-90% off, they"re interested.
In contrast, 365Austin subscribers signed up because they love the publisher"s content. Austinites are known for their fierce loyalty to local and 365Austin is where they go for updates on area events and activities. Readers trust the publisher"s authority on the best businesses around town, so when they see a merchant featured in a 365Austin offer, they buy it to truly try a local favorite—not get a one-time discount and dart. While sites like Groupon can scale at a faster rate, their ability to source and provide deals that resonate with their audiences is very limited in comparison to those who already curate content for their readers.
* Lesson #3: Capital and operating costs shouldn"t break the bank.
Groupon is breaking the bank - literally - to build its online consumer brand from scratch. And, while smaller publishers don"t have the $208 million that Groupon spent in marketing to grow an audience, guess what they do have: an audience. Local media publishers also have existing sales forces. With a dedicated fan base and operating sales team already in place, the only piece missing from the publisher"s puzzle is the technology and best practices needed to hit the ground running.
When jumping head first into the daily deal industry, publishers were initially faced with few options: launch a co-branded program with a consumer site (usually resulting in lower cut of revenue and the forfeiting of subscriber data) purchase a software-only platform requiring internal deal sourcing, production, and customer service resources; or build the entire program in-house with limited to no deal industry experience. Both options left publishers with either little risk and little reward or enormous risk and questionable reward.
Enter: white-label solutions. While consumer sites like Groupon were getting all the glamor of magazine covers and morning show segments, technology companies were steadily building a behind-the-scenes business in full-service daily deal solutions for niche and local publishers. Bringing their audience and advertisers to the table, established publishers are now partnering with these full-service firms that handle all the grunt work of deal sites like production, scheduling, customer service, etc. so the publisher can keep doing what it does best: creating great content.
It"s still early in the daily deals game, and to those of us playing, it feels like the field of group buying changes every day. But amid the evolution and excitement, a general trend is emerging: online publishers are in a prime position to be profitable in group deals. And they know it.
Goliath Groupon may look mighty on its mountain of money with an army of salespeople. But, backed by loyal audiences, strong merchant ties, and a more solid financial foundation, our bet is on publishers to lead us into group buying"s new territory.
Boston Pedicab general manager Justin Bruce likes the idea of offering discounts through group-buying Web sites, but there"s always the chance of being overrun by coupon holders during busy times.
He recently turned to an alternative, Groupon Now, which allows bargain hunters to shop for deals in their area that they can immediately use. He doesn"t get the wide exposure provided by a traditional Groupon offer or other discount sites, but he has a better chance of getting traffic during slow times.
"For us, it"s not so much about the marketing as it is the selling," Bruce explained. "The deal goes on when we have availability."
Last week, the company started offering discounted tours from 11 to 2 p.m. Monday through Thursday.
"We"re hopeful and optimistic," he said. "It"s just launched so it will take some time."
Sites like Groupon, BuyWithMe and LivingSocial generally offer great deals for the consumer, but they can be a costly disappointment for small businesses. The key to using them well is to understand what you are getting yourself into and what can go wrong.
Initially, the sites were seen primarily as a way to reach a range of new customers. That"s been changing as companies have seen how those consumers reacted.
"We are starting to see businesses being smarter about trying to use coupons to get rid of excess inventory and to fill tables at slow times," said Ian Cross, director of Bentley University"s Center for Marketing Technology.
Although businesses can get broad exposure, it"s not cheap. Discounts generally run about 50 percent. The sites then take half of the rest. Many also require the business to cover the cost of credit-card processing. That means taking in less than 25 percent of a full-price sale.
Is it worth it? The answer is a wishy-washy maybe, it depends.
Can you offer such a fantastic experience that people will want to come back again and pay full price? Or, can you sell other things during the visit to make up for the loss?
You need to make sure that the discount customers are treated just as well as those paying full price, which raises another concern. You may have a flood of customers immediately after the coupon is offered and another toward the deadline if there is one. Are you ready for that?
You can control the crowd somewhat by putting limits on the number of coupons offered and on the hours or days when it can be used. This needs to be handled carefully, however. You don"t want to appear too stingy or you risk turning off potential customers.
You also want to make sure you are reaching the right customers. The concept has worked so well that there are many options. To get a sense of which might be best for you, look at what kind of deals each site is offering and what kind of companies they"re working.
This will give you a sense of which caters to the customers you want to reach and which best meets your goal, whether that is getting the word out about what you do or filling seats.
Google Offers just finished its first month. Google has been testing its Groupon compete in Portland and I"ve been closely tracking the results.
Doing a head-to-head comparison like this is a bit difficult because the two companies run deals differently. Groupon runs multiple deals each day. Many Groupon deals span multiple days, with some running for three days. Google Offers on weekends ran for two days. For each run, I picked a representative deal from Groupon and compared it with the deal from Google.
I looked at 24 deals from each company. For these deals, the median deal value for Google was $1,987 compared with $8,900 for Groupon. In its first month, Google grossed $129,000 compared with $331,000 for Groupon. Five of the Google Offers grossed less than $1,000; all of the Groupon offers exceeded this. This is to be expected given Groupon"s longstanding presence in the market; Google hasn"t had the time to build a large subscriber base. Actual Groupon revenue (across all deals) would be significantly higher.
"Our Portland trial is going very well for us," said Eric Rosenblum, director for Google Offers. "Our intention was to start learning how to source great deals, provide excellent merchant and customer service (including phone and email support), and deliver value to our customers, and we are certainly doing that. In terms of our commercial results, the majority of our deals in month one either outperformed or were in-line with our expectations while around a quarter underperformed. Our total units are above where we had projected, but we still need to get better about predicting performance."
One significant difference was the median sale price. Google"s median sale price was $10; Groupon"s was 4 times that at $40. This was the result of Groupon having a higher percentage of services and activities such as rock climbing and screenprinting classes.
Cash sells best
An area of concern for deal companies is that the deals that generate the most revenue are the ones that are least sustainable for businesses.
The most popular deal in the month for Google Offers was an offer for $20 worth of merchandise at Powell"s Books for $10. 5,000 Powell"s vouchers sold out in a matter of hours. Powell"s is a Portland institution and the deal was the equivalent of selling cash for half off; there"s no reason not to buy one.
The next day, Google ran an offer for personal training and fitness classes. That deal sold 9 units. The worst performing deal over the course of the month was an acupuncture deal that sold 5 units over 2 days. Google grossed $300 on that deal.
Although Google would not comment on specific deals, I expect that the Powell"s deal was heavily subsidized by Google in order to build its mailing list. Rosenblum did say deal subsidies are something they would consider for appropriate merchants. I can"t think of a more appropriate merchant.
The worst performing Groupon that I tracked grossed $1,440 and the best performing deal grossed $44,000. Excluding the Powell"s deal, which grossed $50,000, the best Google Offer grossed a bit more than $23,000.
The closer a deal is to a cash equivalent for an everyday need, the more it will sell. 3 of the top 5 grossing Google deals were for restaurants; another was for 62% off GoKart racing. (That was the one deal that outperformed my expectations.)
Deals like dentists, guitar lessons and medical services (one Groupon offer for a breast exam sold 12 units) are more sustainable for businesses but are low frequency activities. Groupon has a large enough mailing list that it can still generate significant revenue off deals that are sustainable for businesses. But it also means that they will have to keep growing their list rapidly as people tire of such deals.
Google Offers generally had more restrictions than offers on Groupon. While this may sound like a bad thing, I believe it"s better for the ecosystem long term. An offer for Le Bistro Montage restricted the deal to weekend brunch. This is a new product offering for the restaurant, so it serves to expand awareness versus potentially displacing existing business. An offer for a Mediterranean cafe wasn"t valid for lunch.
A deal for a barber shop was "valid only for barbers Brian or Jennifer."
In at least one case, I thought the restrictions went overboard. Here are some of the restrictions for a deal at an Italian restaurant:
Reservations required and subject to availability. 24-hour cancellation policy applies or you"ll forfeit your voucher. Not valid during holidays, on happy hour prices or at the Jade Lounge. Must mention Google Offers when making reservations.
Although the intent is to smooth demand, these are unusual restrictions and I worry they could create a bad customer-service dynamic as consumers who purchase the deals and don"t read the fine print try to redeem them.
The final deal of the month didn"t get a lot of traction because of its low value. It offered $6 worth of Vietnamese food for $3. The description noted that a small bowl of pho is $6.50, large is $7.50. For a deal seeker, that"s an unattractive deal because they would have to pay additional cash out of pocket. For many consumers, prepurchasing a voucher to save $3 hardly seems worth it.
A common complaint about Groupon from merchants is that they weren"t made aware that they could cap a deal or that a cap was ignored. We published an email from a former Groupon employee who stated that some salespeople low-balled volume estimates to get merchants to run deals uncapped.
The feedback I"ve received from merchants about Google Offers in Portland indicates that Google sales tries to ensure that the deal structure is suitable to the business"s needs. (But then again, this was the launch of the service, so you"d expect Google to be extra vigilant). One merchant mentioned that Google asked if she wanted to restrict the deal to new customers only. (She opted not to.) Another merchant told me that while she wouldn"t consider running a Groupon, she was considering a run with Google Offers. She liked having the flexibility to restrict the offer to just breakfast, a time when most people aren"t aware that they"re open.
One complaint about Google Offers that was reported by Business Insider is that Google sales reps have implied that running an offer would make them #1 in Google search results. Google spokeswoman Jeannie Hornung said, "We have a training process in place for sales people that has made and continues to make it very clear that Offers has nothing to do with search. As we said before there was clearly a misunderstanding."
I believe that Google won"t let Offers influence search results. I"m equally certain that when you build a large sales organization, some people will try to close deals by implying things that aren"t true. Google"s reputation in search is too important to damage. Any perception of such tying would also raise antitrust concerns. Google would be well served to make it very clear in its merchant help center and its merchant agreement that search results are not helped by running an offer. If it were my product, I would have merchants specifically acknowledge that they understand that Offers doesn"t generate an SEO benefit.
It"s still the early days of the daily deal business and Google has put out a very credible beta in Portland. Thirty days in, I stand by my claim that there"s not much that is original here.
I believe that they"re striking a better balance between merchant and consumer value than Groupon. The additional restrictions mean that merchants aren"t just selling cash at a substantial discount. Another key differentiator for merchants is more generous payment terms. Google pays out 80% of the merchant"s share in about 4 days and the remainder (subject to chargebacks) in about 90 days. Groupon pays out 1/3 in 5 days, 1/3 in 30 days and 1/3 in 90 days.
That should make for some interesting competition as Google"s product matures and it rolls out in more cities. Up next: New York and San Francisco.
Clarification: In an earlier post I noted that Google held consumers responsible if a merchant went out of business. This was based on Google"s posted terms of service. Google has since told me that the wording was unclear and meant the opposite of what they intended. "Google"s intention is to refund money to all consumers who purchased a voucher from a merchant that has gone out of business," Hornung said. "We are redrafting clearer language now which we can share when it"s published."
Yahoo has lost another one of its top advertising sales execs, Mitch Spolan, to a hot start-up of the moment-this time to LivingSocial.
The move by Yahoo"s head of North American field sales is the second major loss by the Silicon Valley Internet portal to a social buying site. Another Yahoo sales lead, Lee Brown, left Yahoo late last year to head sales at Groupon.
Spolan-who is a long time Yahoo sales exec, having survived a myriad of new bosses and management turmoil over his dozen years there-will become SVP of national sales at the Washington, D.C.-based LivingSocial.
In an interesting irony, he will be competing directly with Brown, who used to work for Spolan at Yahoo, in the red-hot online local discounting space.
Another irony: For the first time in 12 years, Spolan will be missing Yahoo"s national sales meeting, which is next week and where his latest boss, U.S. head Ross Levinsohn, will be selling the troops on the changes he will be making to revitalize the company"s advertising business.
Here"s the official press release:
LivingSocial Expands Executive Team Appointing Former Yahoo! Executive to Senior Vice President of National Sales
Local Commerce Leader Appoints Mitch Spolan to Build Out Team, Helping Merchants Nationwide Leverage the Powerful LivingSocial Platform
Washington D.C., March 8, 2011-LivingSocial, the online source for people to find handpicked experiences at a great value, today announces the continued expansion of its executive team with the appointment of Mitch Spolan to senior vice president of national sales. Spolan will lead development of LivingSocial"s national accounts and will expand the nationwide team to work with advertisers and marketers to better leverage LivingSocial"s powerful marketing platform. Additionally, he will focus on creating new opportunities to monetize LivingSocial"s assets through innovative, consumer-friendly advertising models.
"We are very excited to have Mitch join the senior executive team. Mitch"s extensive experience developing new online advertising opportunities and working with top marketers will help accelerate national brands" adoption of the powerful LivingSocial platform," said Eric Eichmann, chief operating officer of LivingSocial. "His hands-on approach, creativity and technological know-how will play an integral role in helping LivingSocial build upon its leadership position in the local commerce space. "
Spolan brings more than a decade of media sales experience to his position as LivingSocial"s senior vice president of national sales with the majority of his professional tenure residing with Yahoo!. Most recently he served as Yahoo!"s vice president of North American field sales, where he led his team to grow revenue and share with Fortune 500 clients by redefining creative opportunities. Spolan began his career as an architect and moonlighted as CEO of Innovation Solutions, an interactive advertising agency he founded specializing in creative design, media buying and planning for small businesses across the country.
"I"ve been following the group buying space from its beginning, both from an industry perspective and as a consumer myself. It"s rare that you get the opportunity to see a new industry born," said Spolan. "LivingSocial has created a new medium where both marketers and consumers are big winners. I look forward to continuing to innovate on this incredibly powerful marketing platform as LivingSocial continues to dominate the local commerce space."
A number of group-shopping websites in China have started to feel the effects of their frenzied expansion over the past year as they struggle with high expenses and low income. Some companies that borrowed large sums of money from banks have even laid off employees and announced salary cuts, according to a June 29 report in the Beijing Business Today.
Over the past year, several group-shopping websites invested heavily in opening branches, hiring talent and other resources, as well as advertising. However, the returns on investments has been small.
Now, some website operators are facing increasing fund flow difficulties, an industry insider said, predicting that there would soon be a first round of group-shopping enterprise closures. In addition, the industry insider said he believed the first company to face financial collapse would be a market leader.
One employee at a renowned group-purchasing website revealed that his company was removing employees indirectly. "Some colleagues chose to leave and go home directly after being transferred to other departments," he noted, adding that some other staff members resigned after they were paid lower than what they were promised.
One worker from a medium-sized group-buying website said that consumers seemed to be losing interest in online group-buying activities, which caused sales to drop sharply.
A financial report released by Chinese social networking service (SNS) website Renren.com said that its affiliate, Nuomi.com, one of China's best-known group-buying websites, required investments of 5 yuan (US$0.77) for every 1 yuan (US$0.15) earned.
According to sources, another large group-shopping website attempted to list in the US stock market but failed.
Moreover, the controversy over the way ownership China's largest online payment company was transferred to an unlisted company owned by Alibaba Group chairman Jack Ma has caused a sharp drop in China-related shares.
That has also made the US Securities and Exchange Commission more careful while granting approvals to filings for listings by Chinese companies in the US stock markets.
Indeed, even Groupon.com, the fast-growing US group-shopping website, was assailed by critics: the operations of the company, which filed an initial public offering, have been derided as a 'Ponzi scheme' for not showing a clear route to profit, while its business model of spending huge sums of money to lure customers has also sparked controversy in the industry.
One industry insider said that group-buying enterprises, which have spent large sums of money, are currently in urgent need of capital.
Given these circumstances, several companies are seeking to cut costs by reducing their workforces, slashing advertising expenses and corporate restructuring. One top-ranking executive at a group-shopping website said an inspection tour of the company's branches showed that two-thirds of the staff could be laid off.
Last week I met with a group of very ambitious young guys in Dubai who are working on a independently funded startup called Grosper. I know what you"re thinking why would users choose Grosper over any of the existing websites such as gonabit, cobone, etc… I asked the Co-founder of the one month old startup the same question and he had a good answer "Grosper is a group buying website that has a different twist to it. It doesn"t focus on your daily consumer items instead we are focusing mainly on real estate, autos, travel and Tutoring/education services" Mohammed Hingora - Co-Founder/CEO
I will explain further on how Grosper works, but first I would like to mention the names of the people behind Grosper:
1. Mohammed Hingora - Co-Founder/CEO
2. Mustafa Hingora - Co-Founder/CEO
3. Gladwyn Lewis - CTO
4. Brandon vaz - Graphic Design Intern
Mohammed and Mustafa Hingora are the two that came up with the idea (and they actually happen to be fraternal twins). The reason they started Grosper is that they felt that customers in Dubai were very unhappy with the real estate situation and the small investors felt like they were being cheated, so with this platform all customers would be entitled to leverage the benefits of group buying in order to get better results, Mohammed mentioned that it doesn"t always have to be a better price, it could be negotiating power or knowledge power. The whole concept is aggregating people to aggregate power.
Mohammed then cited a report he had read earlier this year that between 30-35% of an average family household income goes into real estate while only 20-25% goes into the day to day consumer items.
Another important feature that Grosper provides is the ability for users to create their own deals. Basically users who are registered can setup a deal, which has to be approved by Grosper before going live, and then request people who are serious about purchasing this product/service to join and if they get enough people they will contact supplier and negotiate with them directly with the aid of Grosper. The user defined deals will remain on the website for 14 days because they don"t it to be like a forum, also there cannot be duplicate entries for example a user can"t add a deal for a Honda Accord if there is one already posted by someone else. Below is a screenshot of how this section will look like:
We then discussed how Gropser will manage user deals, because if it takes off it will require a lot of monitoring and moderation, and how can Grosper ensure that the deals are not being added by someone whose not serious at all. To which Mohammed replied that they have been working on an algorithm to make this process more trustworthy. The algorithm will take into account:
1. User history with the website
2. How fast the deal is being shared
3. How many users joined the group
4. Group joiner"s history with the website (obviously the group creator has more weight than group followers)
Users can also be warned or blacklisted from this section of the website.
After that we talked about the website and if they had a running demo, they were nice enough to provide us with some screenshots of their work in progress website as you can see below:
The website will initially focus on deals from Dubai, even the travel section will aim to push tourism inside the UAE, Mohammed called it stay-cations instead of vacations. So they would practically have deals for hotels and resorts in Fujierah and RAK in the UAE.
Grosper"s marketing will focus entirely on social networks especially on Twitter, they have already started a sweepstakes campaign where users can enter a chance to win an iPad 2 by referring three friends to register on to the site. Once the website is ready to go live sometime in July/August they will also have a number of videos that will help in educating people on how to use Grosper and raise awareness about the new platform, since Grosper is a social commerce platform they hope these videos will have a viral effect. In the future they plan to keep the users coming back with a loyalty program that is still being planned.
As to how they will measure their success they mentioned the following metrics:
1. No. of Active Users
2. No. of Registered Users
3. No. of Followers on Social networks
4. Social Engagement
Mohammed feels that they will have a very tough six months ahead just to educate users on how to use the personalized group deals, but he is confident with their phased approach to the development of the website they will manage to make it work because they will focus first and foremost on customer service and focus heavily on their feedback. Mohammed believes that customer service is something that is lacking in the region so he plans to do something about it with Grosper.
So what does the future hold for Grosper if it does succeed? I asked Mohammed, he mentioned that he would definitely like to expand to the other emirates in the UAE, Bombay and quite possibly the rest of the MENA region. However he did mention something else that caught my attention which was that he would like to setup a Board of Directors with experienced people from the region in the industry in order to aid and provide assistance for his startup, however he was unable to do so yet.
Competition for the leading position among China's group buying firms recently got ratcheted up a notch as industry pioneer Groupon prepares for a listing. The latest research from the country's largest independent group-buying aggregator tuan800.com show that meituan.com ranked first in May in terms of sales, customer visits, number of merchants cooperating in their program and other indicators, and also received the highest score among Chinese firms for its "overall strength", a composite number developed by the aggregator.
According to tuan800.com's China Group Buying Statistics Report for May 2011, meituan.com recorded sales of RMB75.202 million in May, an increase of RMB6.308 million over the RMB68.894 million booked in April, placing the company ahead of all of its domestic competitors. In addition, meituan.com topped the list in terms of overall strength with a score of 83.53, a number that places the firm well ahead of its rivals.
The aggregator collects information on the daily activities of China's nearly 1,000 group buying sites and, in addition, undertakes independent research to generate its numbers. The monthly statistics report is based on the daily sales numbers of all products launched by each group buying website in 40 major cities and rankings of these websites in terms of six key measurements: monthly revenue, number of cooperating merchants, number of customers having made an online payment that month, average number of buyers, sales and customer visits.
meituan.com received top ranking for all six indicators.
The analysis from tuan800 indicated that China's group buying market is going through a period of adjustment during which some operators who partook in fraudulent activities are likely to be forced out. This self-adjustment of the market should allow the group buying websites with the best track records, especially in terms of overall size of the business, quality of its top management, scope and quality of customers and cooperating merchants, among other indicators, to rise to the top, likely triggering the previously expected industry shuffle.
The reason for meituan.com's ability to win despite the fierce competition, more than anything, is the high quality of its services. The website went against the industry trend prevalent during the month of April, which focused on advertising and extensive expansion, by closing down some sites in the country's fourth-tier cities, suspending its outdoor advertisement campaign and putting its efforts into developing its presence in major cities. The numbers demonstrate that the focus on the high quality of services has paid off with over 70 per cent of new customer sign ups a result of referrals by existing customers, effectively bringing more eyeballs to the site than all traditional forms of advertising.
meituan.com also launched the first of its kind customer assurance program. The website made a commitment to provide consumers with a simple and convenient refunds process, including unconditional refunds within 7 days of purchase, money back without question if customers are in any way unsatisfied with the purchase, and refunds on expired coupons.
meituan.com CEO Wang Xing said: "meituan.com is a group-buying website specializing in localized consumer services, consistently adhering to the shared values of 'consumers first, merchants second and meituan third', aggressively utilizing all resources to constantly improve the high level of service provided to consumers and merchants alike. meituan.com believes that a bright future lies ahead for the group buying sector in China, if and when the sector's players focus their attention on its consumers and cooperating merchants. The resultant positive feedback from those consumers and merchants will be more effective than any other form of advertising."
Asia is the fastest growing spa market in the world. That was a consensus in the first Global Spa Summit held in the internationally acclaimed tourist destination Bali, Indonesia in mid of May. The Global Spa Summit was attended by more than 275 delegates from all over the world. Of that, 39 per cent hailed from Asia.
Having the world"s largest population and benefits of thriving economy, China was rightly put on the top position of a list of countries that would be expected to enjoy marvelous growth in the spa industry and leading operators of body care salon would be pleased to capitalize on the Chinese people"s tendency to wellness. It is pertinent to note that in the same moot it was predicted that preventive medicines that come under the spa industry would grow up 44 per cent.
In view of the above-mentioned figures jointly corroborated by industrial representatives, it can conclusively be construed that anti-aging and well-being market stands or will soon stand at par with the tourism industry.
Hospitality and leisure industry is complementing tourism in several tourist destinations as spa is a service most sought after by the tourists. For many South East Asian countries, tourism is the main economic sector creating employments and driving economic activities. Interestingly, spa industry had outshone other entertainment sources in terms of revenues many years ago.
In a book titled "understanding the global spa industry", authors Marc Cohen and Gerard Bodeker underscore that body care salon and spa industry"s revenue has well surpassed that from ski resort sales, box office receipts, and amusement parks.
Online booking of spa services and medicinal purchases are on the rise because of the ease one may feel in them before actually relishing massage. From the comfort of home, people prefer to reserve seats in body care salon through internet-enabled desktop or smartphone.
It has been found that group buying sites have become veritable agents of growth of the spa industry. Operational under the business model of group buying—the offshoot of an age-old Chinese team buying concept, Tuangou—these sites in collaboration with merchants offer spa and various other products to the customers on discounts. Called spa deals, the offers obviously provide customers with the attractive price advantages.
Still, there is lying huge potential to be jointly explored by masseurs and daily deal websites. Online shoppers would love to make purchases and collect vouchers or coupons in group because of the discounts they get in return of popping for fantastic goods or exciting services. Group buying has shaped in to near four billion US dollar industry.
Global Spa Summit revealed a flabbergasting fact regarding the current state of alliance of group buying sites and spa providers. Around 58 per cent of the participants in the summit said they didn"t formulate specials in collaboration with daily deal sites. Notably, 37 per cent of them said group buying sites hopped up their businesses. Fifty-seven percent also believed on the power of social networking sites in increasing sales.
Editor"s note: The following post is a response to our guest series taking a critical look at the daily deals industry. It is written by Vinicius Vacanti, CEO of Yipit, a daily deal aggregator that collects deals from more than 300 daily deal sites.
If you watch the nightly news, you would assume there"s a murder on every block, and if you"ve been reading TechCrunch recently, you would assume Groupon is murdering a small business in every city.
Given the hundreds of thousands of merchants who have run daily deals in the past year, it is inevitable that a few will have had bad experiences. However, to assume that a handful of these anecdotes fully represent merchants" experiences with daily deals is insufficient and irresponsible.
A series of guest blog posts by Rocky Agrawal criticize daily deals, advising small businesses to stay away based on examples of where the deals fail to turn a profit for the businesses. While Rocky"s posts are surely well-intentioned, his evidence is largely based on a few anecdotes and a basic misunderstanding of daily deal economics.
As we detail in Yipit"s Daily Deal Industry Report based on more than 100,000 past deals, 43% of offers in May involved merchants running a deal for at least their second time. Can so many merchants be delusional? Clearly some merchants have figured it out.
While I understand and applaud Rocky"s motivation to protect small businesses, can those businesses really afford to ignore a marketing channel that can deliver hundreds, if not thousands of new customers in a cost per acquisition model? Not only are most small businesses struggling, their standard marketing channels of yellow pages and newspapers are becoming less and less effective.
Instead of telling small businesses to avoid daily deals, how about trying to understand why some small businesses are having success?
With that understanding, we could then educate other small businesses on how they might be able to replicate that success themselves.
It"s a Numbers Game
Like most marketing options, daily deals comes down to the numbers. The good news is that most of the key variables that affect the success of a daily deal experience can be optimized by small businesses via daily deal structure and execution.
My co-founder, Jim Moran, wrote a post on the economics of a daily deal including a calculator. While this calculator bakes in a lot of assumptions, it"s the start of a handy tool for small businesses.
The two most important variables that small businesses can optimize are:
Overage: This metric represents how much more revenue the customer generates for the business than the value of the coupon. The larger the overage, the better for the small business. There are many things small businesses can do to increase overage including:
* Strategically Price the Offer. If you are running a restaurant and the average per person bill is $30, provide a $15 for $30 certificate. The person is likely to bring someone else turning the meal into a $45 for $60 deal.
* Up-sell the user. In a Hacker News post, this skydiving business does a great job of explaining how they up-sell sky divers into getting videos of their jump (60% of customers) and even a second jump that same day (40% of customers).
Return Rate: This metric represents what percentage of customers come back as a regular customer after using a daily deal. Improving this metric has the potential to deliver the most value for small businesses as indicated by the calculator referenced above. In a report authored by Rice University, often cited as a reason daily deals are challenging, small businesses reported that 20% of customers came back. That"s actually huge! If a company runs a deal that sells 1,000 vouchers, 200 customers will come back. As the calculator above implies, that"s a high enough return rate to make the deals very successful for most small businesses. To improve return rates even further, small businesses can:
* Surprise and delight daily deal customers. Daily deal customers can be a bit embarrassed to be using a deal. Instead of acting disappointed, small businesses should do the opposite and make them feel welcome. They should thank the customers for coming, tell them the story of the business. It"s actually an easy opportunity to surprise the customer.
* Offer an incentive for them to come back. With their bill, offer them a 20% discount or, if you"re a restaurant, a free appetizer to come back and try the business again.
* Collect their contact information. Tell them you often send out notifications for special events and promotions
* Discount just the first session. If you have a business that involves several sessions like class-based businesses, offer a discount on just the first session. If users like the session, they"ll come back for the rest of the sessions paying full price.
Other factors that improve the economics of a daily deal:
* Breakage: Anywhere between 10% and 30% of deals aren"t redeemed. North American businesses get to keep the profits associated with those vouchers without incurring the cost.
* Exposure: Small businesses gets emailed to tens of thousands and, sometimes, hundreds of thousands of users. This exposure is often the entirety of the value provided by most other marketing channels for small businesses.
If small businesses focus on creating the right structure for their daily deal to increase overage and execute on the daily deal experience to increase return rates, daily deals can become a very attractive marketing option.
Not right for everyone
That being said, daily deals in their current form are not right for every business. The vast majority of deals are for spas, salons, restaurants, events, activities and other services. These merchants all have a large fixed cost base, perishable inventory and considerably lower variable costs. Accordingly, their marginal cost on an additional customer is low enough allowing them to discount aggressively. That"s why businesses have been offering discounts for hundreds of years.
On the other hand, traditional retail categories appear the least frequently across the Yipit database, representing less than 10% of all offers.
A powerful tool that shouldn"t be ignored
Daily deals represent a powerful, scalable new cost-per-acquisition marketing channel that small businesses can optimize via strategic pricing and good execution.
If we really want to help small businesses, we should stop telling them to avoid daily deals. Instead, let"s focus our energy on educating small businesses on how they might be able to effectively take advantage of this new marketing channel. Or, I guess we can just keep directing them to yellow pages advertising.
Online sellers of any size will be able to run their own Groupon-like group sales and daily deals beginning this week when 3DCart unveils the latest version of its shopping cart and ecommerce software.
The company 3Dcart makes Version 4 of its software available July 4. The new features are included with all of the company's hosting packages, which begin at $19.95 per month. Since 3DCart provides software as a service, existing customers don't need to do anything special to obtain the software. Interest is running high, though, and those customers may need to wait.
"It'll be about 2 weeks to get all 12,000 merchants upgraded but new customers should receive it right away," commented Jimmy Rodriguez, Chief Technical Officer with 3DCart. He added that some companies that already operate their own Web sites and online stores are signing up with 3DCart specifically for the Group Sales and Daily Deals features. "We weren't expecting getting that type of customer," admits Rodriguez.
Version 4's new features include:
- Daily Deals. Online stores can feature a different deal every day on their sites. Such sales are intended to help improve conversions through urgency and exclusivity
- Group Deals. Sellers can offer a deal that is only effective if a specified number of consumers chooses it in a specified period of time. Sellers will be able to specify how many customers constitute a "group," what the deal is, and how to promote it.
- Make An Offer.This feature allows customers to bid on specified items.
- Autoresponders. These are pre-programmed emails that are sent out at regular intervals after a purchase is made to inform a customer an item has shipped, to inquire about the receipt, with the goal of building brand loyalty.
- Feedback. Customers are able to easily send feedback comments to the merchant using feedback tabs.
- Facebook Send Button. This allows customers to quickly share products with Facebook friends.
One 3DCart, merchant, Discount Watch Store is already using the Daily Deals feature on a test basis. At this writing, the deal of the day was a Seiko watch reduced from $300 to $89. A time counter showed 9 hours remaining on the deal.
In addition, 3Dcart has integration and a partnership with Groupon and LivingSocial so that any merchant that runs a deal through those daily deal sites can easily generate the 3,000 to 5,000 certificate codes needed on their store for shoppers to claim the Groupon/LivingSocial deal. "Many online stores cannot support that many codes," Rodriguez said, "and in occasions even when they do it, they require the merchants to manually input the codes one by one."
He says all of the features are intended to increase conversion rates for merchants. Many tie in to one of the current buzzwords in ecommerce. "You could call it social commerce selling," he says. "They're all new ways to sell."
The women lean forward in their seats. They're the latest disciples of extreme couponing; women who carry pictures of their overflowing pantries on their cell phones; savvy shoppers who will spend hours flipping through newspaper and magazine advertisements in search of their bargains, and homemakers who have pinched pennies to put food on the table during the recession and need the extra help.
Most have watched the television series "Extreme Couponing," which debuted on TLC in April and follows shoppers whose intense devotion to finding bargains can whittle a $555.44 grocery store bill down to $5.97, to cite one extreme example.
Heather Border, a 36-year-old mother of four in rural Idaho, is a new to the extreme coupon phenomenon. But she was hooked a few weeks ago, after coupons and store deals brought her $180 grocery bill down to $40.
"I was feeling a little conspicuous because people were staring at me," Border said. "Then, I felt a rush."
She was among about 20 women who attended an extreme coupon class on a recent Saturday in Boise. The three-hour course was taught by Knight and her business partner, Cathy Yoder. They own the extreme couponing blog, "Fabulessly Frugal."
The women "oohed" and "awed" as Knight pulled out the fat binder of coupons that saves her 50 percent to 90 percent on every grocery bill. She showed off pictures of the stockpile of food at her home, where 46 boxes of cereal are stowed in her children's bedroom closet and packages of breakfast drink mix are kept under a bed.
In their class, Yoder and Knight warn against some of the practices that have given extreme coupon cutters like themselves a bad rap.
They instruct their students to be kind to their cashiers. They encourage them to stockpile food to help their families, but caution against "hoarding" or clearing shelves of items that their families don't need or won't use. They also warned against photocopying coupons, which can place stores on alert and ruin deals for everyone.
"I think the stores are a little freaked out because of the television show," said Knight, who advises her students to keep a copy of grocery store policies on hand during shopping trips in case problems arise.
Even before the "Extreme Couponing" series, grocery stores were put on alert about counterfeit coupons that were circulating online. The National Grocers Association issued a warning in 2009, as couponing made a fierce comeback during the peak of the recession.
The coupon-processing company Inmar Inc. reported coupon use doubling in the first half of 2009 compared with the same period a year earlier,
The Internet has also bolstered coupon use, with a wide range of online promotions, databases of coupons and bloggers who regularly post about the best deals.
"This is a whole new ballgame," said Glenda Glisson, 63, who attended the extreme couponing class in Boise.
The Kroger Co., which operates the nation's largest traditional grocery chain, launched a website about 18 months ago that allows customers to download coupons to their store discount cards or onto home computers to print. The site added a mobile phone coupon app last year.
"We've seen slightly more complex couponing, which can take longer for us to help our customers exit the store," said Kroger spokesman Keith Dailey.
The so-called extreme couponers make up a small portion of customers and Kroger has not been forced to limit coupon use because of the trend, he said.
"But we're certainly keeping an eye on the industry," Dailey said.
NB: This is a guest article by Marco Saio, global events director at EyeforTravel.
US-based LivingSocial, one of the deal sites-of-the-moment alongside Groupon, launched its travel-oriented vertical LivingSocial Escapes in December 2010.
The official LivingSocial proposition is around offering deals on hand-picked travel "adventures", claiming it compliments Facebook"s place to share experiences with its own platform of where to discover and buy similar experiences.
We managed to grab some time recently with Doug Miller, SVP for new business initiatives at LivingSocial.
Here follows a Q&A with Miller where he discusses latest trends in the deal marketplace, the focus of the travel vertical, core audience and other issues.
Can you elaborate on the latest trends for both group buying and flash sales in the travel industry?
The overall trend starts with a very simple idea: creating travel demand. As travellers, we all get excited about watching Anthony Bourdain on the Travel Channel, reading glossy travel magazines or hearing amazing weekend getaway stories shared by friends. These travel stories inspire us, but often pass by without action since there"s no simple way to buy in the moment of inspiration.
The social commerce movement fills a gap in travel discovery and buying. It champions evocative travel stories and pairs these stories with transactional "buy" buttons like never before.
At LivingSocial Escapes, we set out to inspire travel buying. We don"t categorise what we"re doing as "group buying," and the term "flash sale" only just begins to describe the bigger merchandising and marketing idea here. If Facebook is where people share experiences, LivingSocial is where people discover and buy experiences.
Can you highlight salient features of group buying in terms of how it works? What is the potential as a viable distribution channel?
Escapes partners report selling as many room nights in a week with Escapes as they"ve sold all year with an OTA partner. This includes vacation destination & ski resorts, city-market properties, casino hotels and independents. The model is viable. It will change hotel distribution going forward. It"s on-demand distribution for an increasingly on-demand world.
It"s also notable that the social commerce model comes with unambiguous marketing benefits. Escapes pages link directly to hotel websites, by design. We want to create direct engagement between consumers and hotels. We want travellers to engage with hotel brands, hotel videos, hotel content… hotel stories.
Moreover, our voucher-based redemption model drives all reservations through the hotels directly. Enterprising partners report more than doubling their revenues before travellers arrive because unlike other online travel distribution, they own and control the opportunity to upsell at the time of reservation, and for the weeks leading up to the traveller"s arrival on property.
Outline a few tips for any hotel company that it is focusing on group buying and flash sales?
* Expect a win-win-win philosophy from your social or flash commerce partner. There are three parties involved in every successful Escapes offer. There"s the hotel, LivingSocial and the traveller. We think it"s really important for the long-term health of this business that any deal should work for all three parties involved. We want to build win-win-win outcomes.
* Require a level of travel industry sophistication from your social or flash commerce partner. It takes a level of travel industry sophistication and creativity to get this right. That"s why LivingSocial brought in a team with extensive travel industry experience to launch Escapes. Travel is an intrinsic part of the culture of LivingSocial.
* Stay in control of the opportunity to upsell premium room types or cross-sell amenities through your reservation desk. This early engagement with your customers is not possible with all social and flash commerce sites.
It turns out that many Escapes hotel partners find customers really excited and ready to further upgrade their experience when making the reservations with their LivingSocial voucher. Thanks to the voucher"s "trip-in-a-box" savings, travellers are free to immediately add a few personal touches to their getaway.
LivingSocial offers daily deals on handpicked experiences that can be shared with friends. Which areas are you trying to address through your venture considering that consumers are overwhelmed by the research and decision process in the travel sector?
Imagine the ease of shopping a boutique retailer with a small collection of handpicked goods. The store is inviting, approachable and designed with the idea that less is more. Then, imagine that boutique has the capacity to invite 40+ million people each day.
We are not creating a comprehensive directory and jamming it full of every possible travel option. We do not want to overwhelm with choice. Rather, we feature one or two exciting nearcation options and select destination trips. We go deep in telling the story of places and properties, and why they"re special.
To make the process of buying even easier, each Escape is also a "trip-in-a-box", filled with fun. Working with our hotel partners and our local staff, who are on the ground in over 300 markets around the world, we design just the right combination of amenities and experiences to make buying a quick getaway exciting and easy. The "trip-in-a-box" approach reduces consumer stress and planning fatigue.
The approach seems to be working: a surprisingly large percentage of LivingSocial Escapes are bought within just a few minutes of opening our emails. Again, it is our goal to publish trip ideas worthy of sharing with friends, spark the imagination of travellers and create demand.
Can you describe your core audience? Can you explain the preferences in terms of travel planning and also buying behaviour of your core audience?
The Nielsen Company recently reported LivingSocial audience numbers that prompted one reporter to write that our customers are "younger, richer and smarter" than our nearest competitor [Groupon].
That said, I think what"s most interesting about our audience is their mindset. They are sociable and adventurous. They like to try new things, they"re curious about the new and unconventional, and they like to convince others to try new things as well. The LivingSocial customer wants to get out from behind the screen and experience the world.
LivingSocial is also much more than just a travel business. Our audience demonstrates uncharacteristically high levels of daily engagement with our site relative to an OTA, or other travel vertical flash sale sites.
The LivingSocial customer checks in regularly on local deals, finds lunch with LivingSocial Instant on their iPhone, and shares offers on Facebook. Escapes travel partners benefit from this heavy daily engagement. We"ve sold over 400k room nights for about 400 properties since launching just months ago.
As far as buying behavior among our members, we see a reverse bell curve in purchase patterns meaning people open/buy as soon as the email hits on Wednesday, then there is a dip while people plan with families and friends, and then there is another spike near the end of the week that the deal is live. Moreover, Escapes partners report that they see huge spikes in their website traffic during the period their deal is live.
The concept of flash sales is gaining traction in the travel industry. For consumers, flash sale sites are becoming increasingly popular because they"re an attractive way to access overstocked inventory, or to get introduced to new offerings. How do you expect this concept to shape up going forward?
The trend toward social buying and flash sales will change and influence both travel media and travel distribution going forward. One partner recently said to me: "If you had told me I could get my hotel in front of over 20 million, and get more than 800 new customers in ten hours, and do all of that with no upfront cost, I would have told you were crazy. Where else am I going to do that?"
The travel industry has witnessed several new initiatives related to group travel. How do you assess the maturity level of group buying in the travel sector?
I think we are just scratching the surface and there"s considerable innovation ahead.
The field of travel social and flash commerce sites will grow, and clear differences will emerge. Some will bring travel industry expertise into the heart of the company, and some will outsource it. Some will create demand and inspire travel, and some will simply push deals on unsold rooms. Some will build a global audience, and some will focus on a select segment.
In general, the concept of social or flash commerce works for travel. It"s highly measurable and performance oriented. You don"t pay for impressions. You don"t pay for clicks. You pay for heads in beds and butts in seats.
Can you explain how you go about offering travel deals/ exclusive offerings to your subscribers? How do you make it enticing for them to avail the same?
It starts with our experienced team in the field, a team with deep travel and media backgrounds. They work with each individual property to develop ideas and packages. We do not believe in a "one size fits all" approach.
After an Escape idea has been crafted, we have an in-house editorial and design team that works with our partners to develop an offer page. The page presents the partner"s story using rich copy, imagery and video. Once each week, we published a collection of Escapes including both nearcation and destination trips, and our offers typically run for 7-days.
Importantly, LivingSocial"s members subscribe for email or mobile alerts from a home market. That means we can intelligently feature Napa getaways to members in the San Francisco Bay, promote Hawaii in key West Coast feeder markets, and Puerto Rico in New York.
Of course, discovery of these deals is not limited to these markets as we"ve seen plenty of Napa Escapes purchased by our members around the world. Sometimes an escape means going a little further away so escapes.livingsocial.com is designed to encourage discovery of our entire collection - from near to far - each week.
How do you think hotels can play their part in terms of making the offers attractive?
The experiential "trip-in-a-box" approach is really important to the success of an Escapes offer. When developing these packages, we welcome creative ideas as we want to excite and inspire travel. One Escapes partner in Banff included an ice-walking adventure, a small property in Vermont included cooking classes, in Oregon a resort included a whiskey tasting experience, and in Arizona a partner included tickets to the family water park.
The more value included in an Escape, the more attractive it becomes to the consumer. Properties that leverage other amenities such as an onsite spa or restaurant tend to run more successful Escapes than those who offer accommodations only. Of course, packaging also helps to protect rate integrity.
NB: This is a guest article by Marco Saio, global events director at EyeforTravel.
NB2: Miller is scheduled to speak at the forthcoming Travel Distribution Summit North America 2011 in Las Vegas (19-20 September) this year.
Groupon pioneered the daily deals format for local merchants and has enjoyed tremendous growth. As a result, hundreds of copycat sites have sprung up, from the likes of LivingSocial to Google Offers. Before Groupon came along, local merchants had been flinging their money at listing fees in various yellow pages, review catalogs, coupon books and display ads - online and offline - in order to get noticed.
But the return on investment was always a bit of a mystery. The good news is that daily deal sites now offer local merchant an enticing pay-for-performance model. The bad news is that the daily deal format is very hard to control and a deal that sells hundreds or thousands of vouchers can put the merchant on life-support.
In fact, daily deal sites like Groupon and LivingSocial ignore the reality that services cannot scale the way products can. They can liquidate huge amounts of excess inventory of any product without damaging the customer experience. But the model is inherently unsuitable for services. For example, you can sell a thousand LCD TVs in a flash sale. But can you sell five hundred hair-dos at the local salon without compromising quality?
Long before Groupon came along, another daily deal site called Woot.com built a flourishing business around daily deals for products. Looking for that special caulking kit? Woot"s got one today. Actually, they may have a few thousand, and the first one and the last one are exactly alike. There also is no difference in customer satisfaction, whether you bought the first or the 1,239th caulking kit.
Now let"s take look at the typical Groupon daily deal like the one pictured below for a hair smoothing treatment at a salon. The deal was purchased by 457 people. But does the salon have the capacity to provide the service for 457 customers without compromise? Users bought the deal because they wanted to experience the service, so hundreds of them call the salon right away to schedule. Because the deal was so successful, most get turned away, or are forced to schedule months down the road. Many encounter busy phone lines and conclude that it"s best to call later. A few months later, customers get an email reminder from Groupon that their coupon is about to expire. And the crush of phone calls and schedule juggling repeats, this time with more urgency since the deadline presents a risk of the customers" money going to waste.
The chart below shows the redemption load on the merchant over time, from the day the Groupon deal is run to the day the voucher expires.
The result: Pissed-off customers, harried staff at the merchant, bad reviews on Yelp and lots of customers unable to use their vouchers. Customers who are unable to use their vouchers are not going to be repeat customers.
As you can see, the daily deal model doesn"t work for services because it creates peak demand way above the capacity of the merchant. But what if there were a marketplace for deals where we could buy the deals we want, when we want them? In short, an Amazon.com for deals. Such a model eliminates the time pressure to buy deals and allows the user to look for the deals they want, when they want them, thereby creating steady demand for a merchant"s services.
A deal site that follows the marketplace model would scale for services, because it would give merchants control over their promotions. The merchant could generate steady demand for his services by running a promotion with a monthly quantity cap determined by his capacity. This ensures that each customer can have a good redemption experience.
The goal of any deal or promotion is not only to bring in customers, but to bring in customers that are satisfied and come back. For merchants offering services, the marketplace model can sustainably deliver repeat customers with low risk.