For those of you who may have read my post on Groupon, you’ll know I think the daily/group deals market is relatively untapped and the model is only going to improve as businesses learn how to adopt the platform properly. That said, following last night’s presentation in my Digital Media Marketing class at NYU Stern by Living Social’s SVP of National Sales, Mitch Spolan, I’m a Living Social convert: I believe the Living Social value proposition is one of quality, whereas that of Groupon is one of quantity.
Both platforms are about time shifting the decision to buy. Mitch proposed that we’re all creatures of habit. We settle comfortably into routines. We buy the same sandwich for lunch each day, because we know that it works. These daily deals sites time shift the buying decision. When you buy a voucher for lunch at that new restaurant online, you’re taking an action that will preempt your routine: rather than buying that same sandwich, you’re incentivized by having that voucher to try the new restaurant down the street, for example. Mitch emphasized the power of this movement – these daily deals have the power to make you turn left, instead of the usual right, because the decision to turn left is made at some other, earlier time, outside of that routine.
However, Living Social differentiates from Groupon in several ways. First, whereas Groupon generally focuses on “things” (pole dancing aside), Living Social focuses on “experiences,” such as adventures and escapes. As a result, Living Social claims that its audience is both more affluent (on average earning 150k salaries or more), and more educated; Lee Brown of Groupon would argue the statistcs are skewed because Living Social has only a fraction of market share as compared to Groupon. Regardless, Living Social has ownership of a very specific and targetable segment, one which has significant buying power. Second, Living Social is (supposedly) seeing much greater success with bigger national deals. The recent Whole Foods campaign was wildly successful, with 1 million vouchers sold. (It was around this time in the presentation that Groupon’s Lee called up to say “fuck you” to Mitch in class – it’s ok, though, it was in jest as they’re best friends, having worked at Yahoo together for over a decade.)
The result of the Whole Foods campaign was that the top trending terms on Twitter, the most shared items on Facebook, the top search keywords on Google, and the headline news for that day were all around Whole Foods and Living Social. Capturing all these mediums is a significant achievement, as they’re not channels that are explicitly for sale.
The biggest difference in my opinion, however, is in frequency of deals pitched. Living Social emails out 1 deal per market per day, whereas Groupon is doing 7-8. The lesser frequency combined with a focus on experience translates to, as Mitch noted, deals that are “special.” The deals are high quality, not targeted, and are in turn shared and redeemed with great frequency. These deals have a premium-esque feel to them.
Mitch provided arguments against the arguments against group buying. One common concern is that consumers have no loyalty to a deals site. Effectively, Mitch agreed – this is why, rather than using gimmicks to keep customers, Living Social is focusing on high quality deals of interest. Another argument against is that companies view such deals as eating into margins. Mitch noted that yes, deals can be viewed as eating into margins, but a more realistic perspective is to view deals as a marketing expense. And not just a marketing expense, but the most efficient of marketing expenses. Consider: with a $15 million investment ($10M for consumers and $5M for Living Social), Whole Foods was able to own social media, search, and more for that day, plus, they got 1 million customers in the door, most of whom likely spent more than the $20 voucher covered. Remember, none of these channels are for sale.
Another argument against daily deals relates to customer loyalty. Both Lee and Mitch agree on this one: the news only reports what it wants to on this subject, and in fact customers are more loyal than one would expect. In the case of Living Social, the firm’s observing ~67% customer return/retention rates. Mitch did note, however, that though deals can get customers in the door, it’s still on the company to deliver the goods, and get customers to return. With Living Social only running a deal once or twice per year for a given firm, they’re not in the business of managing customer loyalty; rather, they’re facilitating sharing quality experiences with the (affluent and well-educated) masses – the delivery is on the company providing the deal. Also of interest is that customers are encouraged to share with friends with the Me + 3 program, whereby if 3 of your friends purchase the deal, you get yours for free.
Lastly, and perhaps most interestingly, Living Social has embraced using their platform for explicit brand marketing. Consider this Boardwalk Empire deal. At most, only a few hundred of these can be sold nation-wide. The underlying purpose of this deal is to create brand awareness and get people talking about the HBO show. Frankly, this is a brilliant move, and I think Living Social’s decision to build a reputation of focus on quality rather than focusing on price or volume of deals is what will allow for brand-focused plays. Unfortunately, I don’t think Groupon can get away with something like this, as they seem much closer to commoditization of group buying.
So, in summary, I think both Groupon and Living Social should be afraid of the day when Google and Amazon get their shit together. Until then, both firms have their place in the daily deals market. Personally, as much as I found Groupon’s Lee Brown’s presentation interesting, particularly given its pre-IPO timing, I must say that Living Social’s Mitch Spolan wins. Mitch’s presentation was just as good, but more importantly, it got me interested enough in his firm to want to check what Living Social has to offer, and sign up to see what sort of special deals are available in my neck of the woods.