and the
Online Coupon
Industry
Ben Sobczak
Jennifer Nevins
Joel Samen
Mike Rabinovich
Sindhu George
MK-859: Business Marketing
April 23, 2012
Industry Mechanics
Redeem Coupon
Payment Less Cut
Full Payment
Broker
Merchants
Consumers
Coupon Offer
Coupon
Provide Service
2
Merchant Needs
Awareness
Exposure to new
customers
Manage Inventory and
Capacity
Unload excess inventory or
capacity
Customer
needs
Price Discrimination
Discounts to consumers who
value product/service less than
ordinary consumers
Buzz Factor
Word of mouth
promotion
3
A Growing Industry
$12,000
Non-Us
US
$10,361
$10,000
$8,613
$4,505
In Millions
$8,000
$6,804
$3,915
$6,000
$5,344
$3,694
$4,000
$3,240
$2,672
$5,856
$1,944
$2,000
$470
$1,545
$858
$1,750
$4,698
$2,672
$3,564
$687
$0
2009
2010
2011
Source: Needham & Company LLC worlwide estimates (Jan 2011)
2012
2013
2014
2015
4
Industry is Highly Competitive
Threat of Substitute Product
Government
• This is a unique substitute to old
economy coupons
• Low switching costs, no tie-in
• Hard to quantify performance
vs. traditional
• Laws and policies differ by
region
• CARD Act
• Privacy Laws
Bargaining Power of Suppliers
Intensity of Rivalry
Bargaining Power of Buyers
• Main supplier is labor
• High unemployment
• New industry attracts high
quality talent
• This could decline as economy
recovers and industry matures
• Innovations are easily copied
• Currently market penetration
over profits
• High level of marketing expenses
• Low switching costs
• Near perfect information on
costs
• High fragmentation of
marketplace
• Low differentiation of
products
Threats of New Entrants
• Low costs of new entry
• Need brand equity in order to
build customer base
• Time to build distribution
network
• Short term not profitable
Legend
High
Medium
Low
5
$35.0
60.0%
$30.0
50.0%
USD in Millions
$25.0
40.0%
$20.0
30.0%
$15.0
20.0%
$10.0
$5.0
10.0%
$0.0
0.0%
Revenue
Growth Percentage
Segment Growth
Monthy Growth by # Deals
6
Challenges and Opportunities
Challenges
Questionable
profitability for
merchants
Opportunities
Prove Efficacy
Capacity issues for
small businesses
Fraudulent deals
Existing players are
not yet profitable
Generate Long Term
Buy In
7
A Market Dominated by Two
Daily Deals Market Shares ($3.7 B)
Increased market share;
added 3% of the industry’s
revenues from July 2011August 20111
Others
22%
Lost 2% market share over
the same period1
5%
Focuses largely on daily
53%
travel deals
20%
Other online
discounters
Combined market share
of 22%; numbering more than
4002
Source: “Daily Deal Trends in North America.” Yipit Data. http://www.yipit.com. August, 2011.
8
Value Distribution & Profitability
Value Distribution per Deal (typical discount of 50%)
Total Value of product/service
100%
50%
Consumer
20%
Broker
30%
Merchant
Broker
Merchant
Revenue
Volume of deals
Revenue
Volume of new customers and products
Profit
Fixed costs related to merchant and
consumer acquisition
Profit
Conversion rate from first-time to
repeat-buyer
Strategic
Large base of loyal merchant customers
Strategic
Cannibalization of customer base
9
LivingSocial: Playing Catch-up to Groupon
Daily Deals Market Shares ($3.7 B)
Industry Position
Others
22%
• 2nd largest by market share,
5%
53%
20%
revenue
•
Lost 3%-5% market share in 2011
• 46 million subscribers
“LivingSocial is the online source for discovering valuable local experiences”.
“We help great local businesses grow by introducing them to high-quality new
customers, and give merchants the tools to make our members their regulars”.
Source: “Daily Deal Trends in North America.” Yipit Data. http://www.yipit.com. August, 2011.
10
Marketing, Sales and Channel Strategies
Timing
Service
Sales
Distribution
Instant
Full-service
Call centers
Daily emails
Daily
Self-service
Sales force
Website
Weekly
Mobile
application
Products
Broad-based
categories
Niche
categories
Social
networks
11
Customer Segments & Product Offerings
Target Customer Segment
Broad-based
Niche
Daily Deals
Families
Products/Services
Offered
Niche
Product/Service Type Offered
Broad-based
Take-out
& Delivery
Adventures
Escapes
Gourmet
12
Solution #1: Release Developer API
Benefits to Merchant
• More Visibility of Promotions
Facebook user growth (in millions)
Benefits to LivingSocial
• Reduced Sales Costs
• Increased Consumer Reach
• Tiered Subscription Model for Data
Risks
• Potential Loss of Control
Competitive Response
• Easy for Competitors to Duplicate
13
Solution #2: Amazon Loyalty Partnership
Benefits to Merchant
• More Customer Loyalty to LivingSocial
• Better Analytics on Purchase Patterns
Benefits to LivingSocial
• Target More Customers Using Amazon
• Lower Cost Per Acquiring Consumers
Risks
• Decreased Profitability for LivingSocial
• Harm Amazon Brand Name
Competitive Response
• Easy for Competitors to Duplicate with Partners
• Groupon with Expedia and Four Square
14
Solution #3: Analytics to Prove efficacy
Do You Plan on Running Another Daily Deal?
June, 2011
Dec, 2011
2011 Average
Change %
28%
32%
30%
4%
Maybe, not sure 25%
37%
31%
13%
I doubt it
36%
22%
29%
-14%
Absolutely not
11%
9%
10%
-2%
June, 2011
Dec, 2011
2011 Average
Change %
Yes
36%
35%
35.5%
-1%
No
23%
19%
21%
-4%
I’m not sure
13%
31%
22%
18%
Too soon to tell
28%
15%
21.5%
-13%
Yes, I plan on it
Merchant Deal Profitability
Source: “Daily Deal Trends in North America.” Yipit Data. http://www.yipit.com. August, 2011.
15
Solution #3: Analytics to Prove efficacy
Coupon
Purchase
• Coupon ID
• Coupon Value
• Coupon ID
• Purchase Total
Analytics
•
•
•
•
Coupon ID
Purchase Total
Coupon Total
Profit to Merchant
Benefits to Merchant
Benefits to LivingSocial
• Define Profitability of Campaigns
• Tie Purchases to Consumers – Demographics
• Propose Key Groups to Target in Future
• Larger, More Loyal Merchant Base
• Increase Revenue Through Fees
Risks
Competitive Response
• Campaigns Proven to be Unprofitable
• Privacy
• Easy for Competitors to Duplicate
16
Implementation ROADMAP
2012
2012.5
2013
2013.5
2014
Release Developer API
Initial
development
Full Roll
Out
Beta
Testing
Support and Marketing
Use Analytics to Prove Efficacy
Extend current analytics
capabilities
Beta test
Full Roll Out
Ongoing Development
Amazon Loyalty Partnership
Develop Co-branded
credit card
Software
Integration
Sales/Marketing
Measure and Control
Living Social in a SEA of RED
2011 Financial Situation
Revenue
$245M
Net Loss
$441M
COGS
20%
Available Cash
$115M
Burn Rate
$500M
$1B Cash Infusion Needed
Benefits of Recommendations
Living Social Revenue Projection
Revenue (adjusted)
1500
Revenue
2000
1000
0
2011
Income (adjusted)
Income
1000
3000
Profit in $M
Revenue in $M
4000
Living Social Profit Projections
2012
2013
2014
500
0
2010
-500
2011
2012
2013
2014
2015
2015
-1000
Old Projections
• Break Even in 2014
• $1B Injection of Liquidity Necessary
New Projections
• Break Even in 2013
• $500m Injection of Liquidity Necessary