An inquiry into the daily deals market:
The price of discounts
1. Introduction
The daily deals industry has only gained mainstream attention in the last
seven years. Since then, there are many other markets that have come
about such as e-learning, content marketing, mHealth, big data, intraday
delivery, and of course the whole myriad of mobile phone applications,
but the deals market is defying expectations constantly and continues to
grow. Despite concerns about whether such a market has any real
stability, it’s profitable to the extent that current internet giants are
trying to gain market share in this particular sector. The group buying
concept began in the late-1990s, primarily in the United States with
Mobshop.com and Mercata.com.1 But the company that helped give a
great amount of attention to this particular market is Groupon in 2008.2
Groupon UK launched in 20103 after the company purchased
MyCityDeals LTD for an estimated $267.3 million (£167.91).4 A number
of other deal sites emerged such as Wowcher (2011),5 nCrowd
(previously CrowdSavings.com and then KGB deals)6 and Amazon
Local (2011).7 Groupon’s main rival, LivingSocial was established before
Groupon in 2007.8 Google did enter the market with Google Offers in
20119, but they abandoned this particular operation in March this year.10
1
Kauffman, Robert J., and Bing Wang. 2001. “Bid together, buy together: On the efficacy
of group-buying business models in internet-base.” p:04
2 Groupon. (2014). Groupon. Available: http://en.wikipedia.org/wiki/Groupon. Last accessed 15/10/14.
3 Ibid.
4 MONGA, V . (2011). CityDeal Founders Cash in on Groupon.Available: http://blogs.wsj.com/cfo/2011/06/03/citydeal-founders-cash-in-ongroupon/. Last accessed 15/10/14.
5 Wikipedia. (2014). DMG Media. Available: http://en.wikipedia.org/wiki/DMG_Media. Last accessed 15/10/14.
6 KGB Deals. (). CrowdSavings.com Acquires Faveroo and Expands Its Offerings to Columbus. Available:
http://www.kgbdeals.co.uk/press/release/faveroo. Last accessed 15/10/14.
7 Wikipedia. (2014). Amazon.com. Available: http://en.wikipedia.org/wiki/Amazon.com#Amazon_Local. Last accessed 15/10/14.
8 Wikipedia. (2014). LivingSocial. Available: http://en.wikipedia.org/wiki/LivingSocial. Last accessed 15/10/14.
9 Wikipedia. (2014). Google Offers. Available: http://en.wikipedia.org/wiki/Google_Offers. Last accessed 15/10/14.
10 Ibid.
In this inquiry, I want to see how products have performed on the deal
sites. I aim to make four clear points with this study:
 Push marketing (specifically sending newsletters) has little to no
effect on traffic,
 The more products a site has, the more traffic the site receives,
 Price has a larger effect on the amount of products sold than traffic,
 The price gap needs to be closed.
But before I address each of these points, I shall give background
information on the three major deal sites in the UK (Groupon, Wowcher,
and LivingSocial), and I’ll address why the industry has grown so quickly.
2. Background on the UK deals market
Groupon launched in November 2008 and has since headlined in both
mainstream news and in mainstream business news. In just 17 months,
the company was valued at $1.35 billion.11 As I previously mentioned,
the deal model is not a conception from Groupon, however Groupon did
make many more users around the world aware of it. They paved the
way for many other established deal sites. Groupon had prominence in
Europe when they acquired MyCityDeal Ltd. MyCityDeal had been
serving Austria, France, Germany, Ireland, Italy, Netherlands, Spain,
Sweden, Turkey and the United Kingdom. Like many other group buying
sites, the site was a collective buying platform that allowed consumers
to buy discounted meals at restaurants, treatments at spas, nights in
hotels or tickets to certain attractions. At this point there were no goods
sold on the site. Groupon goods launched in 2011 in the UK, and has
since seen a great deal of growth.
Wowcher launched in November 2008 in the UK by the Daily Mail and
General Trust PLC. It has grown to become the UK’s second most visited
coupon site after Groupon. Their site has always offered a wide range of
local deals, products and holidays. It makes sense that a group like
11
Steiner, C. (2010). Meet The Fastest Growing Company Ever.Available: http://www.forbes.com/forbes/2010/0830/entrepreneurs-grouponfacebook-twitter-next-web-phenom.html. Last accessed 19/10/14.
DMGT PLC would start a rival deal site. The company already has web
developers, a management system, a sales team as well as possible
connections to both local businesses and suppliers. Being a business that
is already established in the UK means that Wowcher has an extensive
amount of local knowledge in comparison to Groupon or LivingSocial.
The latter two companies however have the advantage of replicating a
business model from one city to another. This brings me to the
conclusion that Wowcher would rather be the UK’s largest deal site by
focusing their attention on creating the best deals, rather than expand
into other countries. This is quite a common occurrence as you will come
to find later in this section. If traffic is an indication of how popular a site
is, then we will find that the deal sites that tend to be the second most
visited are companies that operate on a national scale. But there is a big
difference between sourcing the best local deals and sourcing the best
goods deals. Getting the best local deals requires having good local
knowledge, but having the best goods involves getting those products at
the best price. In this instance a company could turn to any vendor in
the world. So it seems that in most instances, it’s questionable as to
whether a company like Wowcher could come out on top over Groupon
for the best deals on products.
LivingSocial was founded in 2007 as Hungry Machine.12 Originally they
created applications for Facebook which allowed users to pick their five
favourite books and rank them. It was only until they purchased
‘buyyourfriendadrink.com’ in 200913 did they change their name to
LivingSocial. The company has remained independent ever since its
inception, and provides local deals, holidays and products. They have
expanded from Noeth America into Europe, Oceania, Asia and South
America. However, in a number of countries such as Argentina, Chile,
Italy, Portugal and Spain, they’re known as ‘Lets Bonus.’ On an
international scale, they are clearly the second largest deal site after
12
13
Wikipedia. (2014). LivingSocial. Available: http://en.wikipedia.org/wiki/LivingSocial. Last accessed 15/10/14.
Ibid.
Groupon. They’ve also taken a slightly different strategy when it comes
to how they deal with competitors in comparison to Groupon. While
Groupon initially bought out smaller companies - more than 2814 - and
now competes with them, LivingSocial continues to buy them out a
whole lot more.15 Dealkeren, GoNabit, Jump on it, Lets Bonus, Ticket
Monster and Urban Escapes have been acquired by LivingSocial since its
inception. Ticket Monster was however sold to Groupon in 2013.
LivingSocial also bought Onosys in 2012 which is a mobile and online
ordering provider. LivingSocial has gone through numerous leadership
changes. Co-founders Eddie Frederick and Aaron Batalionboth stepped
down from their respective positions. The CEO, Tim O'Shaughnessy also
announced his resignation in January 2014, and will now be replaced by
Gaytam Thakar, who was CEO of shopping.com and Vice President and
General Manager of eBay Advertising. The company, like many other
deal sites has had a rocky path. However, the company has still held its
ground as being the second biggest international deal site.
All web estimations were found on www.similarweb.com.16 Traffic
statistics for the LivingSocial UK site (www.livingsocial.com/gb) were
unavailable. Some of LivingSocial’s international websites operate under
the domain www.livingsocial.com. It may not be an accurate estimation,
but if we divided the total amount of visits in September 2014 (15.7
million) with the percentage of how many visits were made by country,
we would have a figure as to how many visits were made to
LivingSocial.com from a particular country:
14
Chantal Beukes and Suzaan Hughes. (2012). An Investigation of Mergers and Acquisitions as the Growth and Globalization Strategy for
Groupon. World Review of Business Research. 5 (5), p112-113.
15 Wikipedia. (2014). LivingSocial. Available: http://en.wikipedia.org/wiki/LivingSocial. Last accessed 15/10/14.
16 SimilarWeb. (2014). SimilarWeb. Available: http://www.similarweb.com/. Last accessed 21/10/14.
UK
Rank Site
1
2
3
Estimated visits
September 2014
Groupon.co.uk 6.3 million
Wowcher.co.uk 2.5 million
LivingSocial.com 928,000 (5.91%)
in
USA
Rank Site
1
2
3
Estimated visits
September 2014
Groupon.com
48.7 million
LivingSocial.com 15.7 million
Woot.com
12.7 million
Germany
Rank Site
1
2
3
Estimated
visits
September 2014
Mydealz.de 3.3 million
Groupon.de 3.2 million
Mein1.4 million
deal.com
in
Spain
Ran Site
k
1
Groupon
.es
2
Es.group
alia.com
3
Es.letsbo
nus.com
Estimated
visits
September 2014
2.8 million
1.8 million
1.7 million
in
in
France
Ran Site
k
1
Groupon.
fr
2
Qoqa.fr
3
Mavilee.l
ookingo.c
om
Estimated visits
September 2014
5.7 million
in
710,000
40,000
Israel
Rank Site
1
2
3
Estimated visits
September 2014
Groupon.co.il
2.1 million
Wallashops.co.il 1.3 million
Buy2.co.il
1.1 million
in
South Africa
Rank Site
1
2
3
Estimated visits
September 2014
Groupon.co.za 1.3 million
Cityslicker.co.za 110,000
Grabit.co.za
50,000
in
India
Rank Site
1
2
3
Estimated visits
September 2014
Snapdeal.com 43 million
Mydala.com 350,000
Upto75.com 220,000
in
Groupon.in receives 15,000 visitors
Thailand
Ran Site
k
1
Ensogo.c
om
2
Mygroup
on.co.th
3
Strealde
al.co.th
Estimated visits
September 2014
1.4 million
in
540,000
45,000
Argentina
Ran Site
k
1
Groupon
.com.ar
2
Agrupat
e.com
3
Ar.letsbo
nus.com
Estimated visits
September 2014
2.2 million
in
610,000
330,000
Japan
Rank Site
1
2
3
Estimated visits in
September 2014
Groupon.jp
1.6 million
Ponpare.jp
1.1 million
racoupon.rakuten.co.jp/ 500,000
Canada
Rank Site
Estimated visits in
September 2014
1
2
3
Redflagdeals.com 2.3 million
Groupon.ca
1.5 million
LivingSocial.com 365,810
(2.33%)
Although we have no information on how LivingSocial UK performs
when it comes to trading on the stock market, we can get accurate
information on how Groupon performed in 2013 and relatively accurate
information on how Wowcher or the ‘Daily Mail and General Trust PLC’
(DMGT) performed.
Groupon has had a rocky flight since its initial public offering on the 2nd
of June 2011. It closed at $26.11 on the 4th of November 2011, which is
31% above its initial asking price. However, after trading for eight
months, the stock price dropped and closed at $7.77. This is a 70.2%
decrease. Its lowest point to this date is on the 9th of November 2012,
when it closed at $2.76. The company saw a rise in 2013, where it closed
at $11.71 on the 27th of December. In 2014, Groupon’s share price was
averaging are around $6. From their second quarter report of 201417, it
seems that the company has experienced most of their growth in
countries outside of North America and EMEA (Europe, Middle East, and
Africa) in Goods and Travel. Combined with Local, countries outside of
North America and EMEA made $134,179 in June 2014, as opposed to
June 2013, where they made $103,509.18 This is a 30% increase in gross
profit.
The DMGT, have also had a rocky flight since 2011, but it has been more
positive in comparison to Groupon’s. On the 30th of December 2011,
DMGT closed at $399.80. Its highest share price since that point has
been $1066 on the 21st February 2014. Its lowest point has been on the
23rd of September 2011 where they closed at $343.4. This is a 67.8%
17
Groupon. (2014). QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly
period ended June 30, 2014.
18 Ibid. p34.
difference in comparison to its highest closing share price to date.
Currently, DMGT is averaging at around $858 per share. It’s unclear as
to how much Wowcher has had an influence on DMGT in order for it to
achieve a particularly high share price. According to the 2013 DMGT
retail report, DMG Media, which is comprised of the Daily Mail, The
Metro, The Mail, Mail Online, Jobsite, Jobrapido and Wowcher, made
£793 million ($1.3 billion)19 in revenue. Wowcher had a turnover of
£15.98 million. Their current net assets however, are -£5.8 million.
3. How has the market grown so quickly?
It’s startling to see how quickly the deals market has grown. Since
Groupon became widely known thousands of deal sites have launched.
There are many long standing competitors who are looking for a share
in the market such as LivingSocial and Amazon Local. There are also
many localised online coupon sites for a specific city or country such as
Wowcher. There are many reasons deals market has grown so quickly:
Dea; sites offer a brand new type of marketing for businesses. They host
deals with the aim to let customers know that restaurants, spas, and
hotels exist. Customers can now go to the business and actually
experience what’s on offer. The customer is receiving the service on
offer whereas in comparison to adverts, banners or posters you only get
an idea as to what it would be like to have that particular service. The
aim of offering these deals at a discount, is that customers would come
back and pay full price for the service they received. With products
however, only certain suppliers are advertised on the site. Suppliers that
are advertised, would be the ones that are supplying goods directly to
the customer. Most of the other goods, are bought by the deal company
and sold on the site at discounted prices. Both Groupon20 and
Wowcher21 seem to offer this particular service. Suppliers are able to sell
19
20
Daily Mail and General Trust PLC. (2013). Daily Mail and General Trust PLC Annual Report, 30 September 2013., p.3.
Groupon. (). About Groupon Goods Global. Available:
https://www.groupon.co.uk/faq#goods_shipping_and_returns::about_groupon_goods_global. Last accessed 15/10/14.
21 Wowcher. (2014). Website General Terms of Use. Available: http://www.wowcher.co.uk/termsofuse.html. Last accessed 29/08/14.
stock to a potentially new audience, make money and develop a new
business relationship. Customers are also coming to the site, and seeing
that they’re selling a whole ecosystem of products. For instance,
someone buying a smartphone may also find that they can buy
headphones, a smartphone case, a speaker and other accessories on the
site. This service is very useful for suppliers that are looking to clear a
great deal of stock and make a tidy profit.
Another aspect which has fuelled growth in the deals market was the
financial crisis of 2007-8 and the Great Recession. With a rise in inflation,
the cost of basic goods increased in many countries, especially in in the
UK. People had less disposable income, and were less likely to go visit
restaurants or spas or buy products. Deal sites blossomed at the right
moment. People were now able to spend money on meals or activities
without worrying too much about their bank balance. Some people
argue that a recession decreases the growth of businesses but as we can
see here, a deal site is a perfect example of new businesses thriving in
such an environment. The model also helped businesses stay afloat,
break even, and lead them on the way to streamline themselves in the
wake of the Great Recession. The amount of people travelling decreased
in this period22, and so people were more likely to look locally for a
restaurant or activity. As we established in the introduction, deal sites
have existed long before Groupon gathered mainstream momentum.
Some people argue that the deals market only gathered momentum
because Groupon launched and marketed itself extensively at precisely
the right time. It’s argued that such a market wouldn’t exist if there was
no financial crisis in 2007-8. However, people have always been willing
to use coupons in order to purchase products and services. Therefore,
there is a market that is looking for the things that deal sites offer: great
deals and/or a new experience.
22
Wikipedia. (2014). Effects of the Great Recession. Available: http://en.wikipedia.org/wiki/Effects_of_the_Great_Recession#Travel. Last
accessed 15/10/14
There are a number of advantages and disadvantages when we compare
daily-deals sites with e-commerce sites. For instance, coupon sites are
localised and offer deals relevant to individuals in the local are. As long
as they have subscribers from the area to send emails to, they can quite
successfully market towards them. Some e-commerce sites have tried to
localise their deals more. Amazon Local has attempted to do this, but
currently they only operate in 26 towns and cities23 across the UK
whereas Groupon operates in more than 5524 and LivingSocial operates
in 32.25 It’s unclear as to whether Amazon Local will get the same
amount of traction as other coupon sites. Currently it seems that
Amazon have a good chance to do this what with coupon sites focussing
less on push marketing and more on pull marketing. Amazon is
tremendous at pull marketing, especially in the UK as it’s the 7th26 most
visited website. Groupon is 128th27, and Wowcher is 437th.28 In the USA,
LivingSocial is 355th.29 So despite the fact that coupon sites are more
locally focussed and can provide great deals, Amazon Local has a good
chance to enter the market as a major player.
Something that Amazon and eBay have that most coupon sites lack is an
extensive amount of choice. It’s a lot easier for e-commerce
marketplaces to have a great amount of choice because anyone that has
anything to offer can advertise their products on either site. Coupon
sites require negotiations as well as the need to build relationships with
merchants. This shows that coupon sites rely heavily on having good
relations with merchants, whereas e-commerce marketplaces like
Amazon and eBay, do not need to develop direct relations. Although
building relationships and negotiating are time-consuming activities, the
trade off with coupon sites is that they hope to sell products at an
extremely competitive price. So, what coupon sites lack in choice, they
23
Amazon. (). Amazon Local. Available: http://local.amazon.co.uk/subscribe. Last accessed 15/10/14.
Groupon. (2014). Groupon. Available: http://www.groupon.co.uk/. Last accessed 20/10/14.
25 LivingSocial. (). More Cities. Available: https://www.livingsocial.com/locations. Last accessed 15/10/14.
26 Alexa. (16/10/14). How popular is amazon.co.uk? Available: http://www.alexa.com/siteinfo/amazon.co.uk. Last accessed 16/10/14.
27 Alexa. (16/10/14). How popular is groupon.co.uk? Available: http://www.alexa.com/siteinfo/groupon.co.uk. Last accessed 16/10/14.
28 Alexa. (16/10/14). How popular is wowcher.co.uk? Available: http://www.alexa.com/siteinfo/wowcher.co.uk. Last accessed 16/10/14.
29 Alexa. (16/10/14). How popular is livingsocial.com? Available: http://www.alexa.com/siteinfo/livingsocial.com. Last accessed 16/10/14.
24
make up for in price. But it will be interesting to see what unfolds with
Groupon, Wowcher and LivingSocial in the next few months as all three
have ditched the blog layout for a searchable shopping layout.
Deal sites are relatively easy to set up. Although you do need capital, you
need much less capital in comparison to other e-commerce businesses
such as Amazon and Play.com (Rakuten). These businesses require
warehouses, logistics, and a large workforce in order to provide the
service they intend to. Primarily, deal sites have to let the merchant
know the amount of traffic the site receives. The market does the rest.
Also, the supplier has nothing to lose because if no one buys a deal, then
they neither lose nor gain any money. If anything, they have gained free
advertising on a site that would have some traffic going to it. However,
having a great amount of advertising for your business and letting
customers choose whether they want to take up your offer can lead to
businesses having a number of issues. For instance a local restaurant
may not be able to fulfil demand as they didn’t stack enough supplies or
have enough staff available. On the other hand, they may have the other
extreme, which is they bought extra stock and have extra staff in the
hopes of having a great number of customers take up the offer, but find
that only a few take up the offer. Selling products on deal sites also have
a similar issue. Some merchants may anticipate a great amount of stock
being sold and find that hardly any as. Some may anticipate some stock
being sold but find that there is a great demand for more. As you can
see from this, it all revolves around supply and demand. We can
generally assume that the market is willing to buy something as long as
the price is good and deal sites are synonymous with having competitive
prices on products and services. This leads me to the conclusion that the
best thing a deal site could do is focus on driving traffic to their site. They
could do this by marketing themselves more, optimising their search, or
by promoting a great service which leads to customers coming back to
the site. To a certain degree, large, well-established, deal sites such as
Groupon and LivingSocial have done a great job providing a service that
customers would come back to. Hyper localised online coupon sites such
as Wowcher, have also done a great job at providing great deals at great
prices. Although they can be difficult to find as search results seem to
always show the world’s most popular two deal sites – Groupon and
LivingSocial – they can provide great deals with the use of their local
knowledge. More and more of these sites are appearing because the
individuals behind them would usually be from that very city or town,
and can see that they have more to offer customers than any other deal
site. This is purely because they have local knowledge, and therefore a
good idea as to which local businesses would benefit from using an
online deal service. The only issue hyper-localised deal sites have is
marketing. Although people in their respective city or country may be
aware of them, people visiting the city or country may not. This is purely
because there is no point in advertising a hyper-localised deal site
outside of their local market.
The most underrated reason as to why the products have sold well on
deal sites, is because consumers are more confident than ever about
buying products online. As we can see from the graph directly below30,
more consumers are turning to the internet for products and services.
There has also been 1% or more growth year by year:
30
eMarketer. (2013). Online Takes a Greater Share of Retail Sales in the UK. Available: http://www.emarketer.com/Article/Online-TakesGreater-Share-of-Retail-Sales-UK/1
009762. Last accessed 28/10/14.
These consumers that have cultivated the confidence to shop online are
not only looking on Amazon and eBay for the cheap high quality
products. They’re also looking on deal sites. With e-commerce sales
growing, it’s safe to assume that customers are more confident about
buying products online. Consumers are still spending money in brick and
mortar retail stores, but growth in this sector has been decreasing31:
31
eMarketer. (2013). Online Takes a Greater Share of Retail Sales in the UK. Available: http://www.emarketer.com/Article/Online-TakesGreater-Share-of-Retail-Sales-UK/1
009762. Last accessed 28/10/14.
It’s clear that due to the financial crisis of 2008, consumers are more
careful about where they spend their money. As a result, consumers
chose to use the internet and therefore, consumers have shown to have
a greater degree of trust for e-commerce.
4. Push marketing (specifically sending newsletters) has little to no
effect on traffic
Deal sites are synonymous with letting customers know about deals on
a regular basis. In this section I aim to find out whether sending
newsletters has an effect on monthly visits. I subscribed to every sort of
e-mail you can receive from all three deal sites:
Website/Month August
September October
Groupon
Wowcher
LivingSocial
130
96
72
120
108
82
128
104
79
Total
amount
of
emails
sent
378
308
233
Groupon seems to send significantly more emails in comparison to
Wowcher and LivingSocial every month. In comparison to them,
Wowcher and LivingSocial send 18.5% and 38.4% less emails a month.
Now let’s compare how many emails are sent with monthly visits:
32
With Groupon there doesn’t seem to be any correlation between how
many emails are sent and monthly visits.
32
Similarweb. (2014). Groupon.co.uk. Available: http://www.similarweb.com/website/groupon.co.uk. Last accessed
06/11/2014.
33
Wowcher seem to have some correlation between monthly visits and
the amount of emails they send.
34
*LivingSocial.com’s UK visits were calculated by dividing the total
number of visitors with the percentage of visitors that came from the UK
33
Similarweb. (2014). Wowcher.co.uk. Available: http://www.similarweb.com/website/wowcher.co.uk. Last accessed
06/11/2014.
34
Similarweb. (2014). LivingSocial.com. Available: http://www.similarweb.com/website/livingsocial.com. Last accessed
06/11/2014
With LivingSocial, there doesn’t seem to be any correlation between
monthly visits and emails sent.
As you can see, we can’t make any real judgements as to whether
sending newsletters has any influence on monthly visits. We can assume
that sending more e-mails overall increases traffic. This is evident with
Groupon because they send far more newsletters and receive far more
traffic in comparison to Wowcher and LivingSocial overall. It would be
interesting to see Wowcher or LivingSocial send as many e-mails as
Groupon just to have concrete clarification that monthly visits would
also increase. From our data however, we cannot make a judgement as
to whether push marketing has an effect on monthly visits.
5. The more choice of products a site has, the more traffic the site
receives
Having an ever increasing range of products mean that there will be an
ever increasing amount of traffic. In this piece I shall be looking at a
number of ecommerce and deal sites to see if there is any correlation
between the amount of products listed on a site and monthly visits.
We can see below that the top four ecommerce sites by annual
turnover in 2013 are not deal sites:
China35
France36
Germany37
India38
35
1
Tmall.com
Amaon.fr
Amazon.de
Myntra.com
2
Jd.com
Cdiscount.de
Otto.de
Flipkart.com
3
Tencent.com
eBay.fr
Zalando.de
Jabong.com
Steven Millward. (2013). China’s e-commerce market to hit $71 billion in sales in Q2; these are the top 10 e-stores. Available:
https://www.techinasia.com/china-ecommerce-market-share-stats-q2-2013/. Last accessed 07/02/15.
36 Ecommerce News. (2013). Ecommerce in France. Available: http://ecommercenews.eu/ecommerce-per-country/ecommerce-france/. Last
accessed 07/02/15.
37 Ecommerce News. (2013). Ecommerce in Germany. Available: http://ecommercenews.eu/ecommerce-per-country/ecommerce-germany/.
Last accessed 07/02/15.
38 comScore. (2013). India's most popular online shopping websites. Available: https://in.finance.yahoo.com/photos/top-6-ecommercewebsites-in-india-slideshow/top-6-ecommerce-websites-in-india-photo-1374728087980.html. Last accessed 07/02/15.
United
Kingdom39
United
States40
Amazon.co.uk Tesco.com
eBay.co.uk
Amazon.com
Staples.com
Apple.com
Apart from competitive prices, another reason as to why Amazon and
other ecommerce sites are more popular then deal sites is because
they’re able to offer a great deal of choice. They’re able to hold stock or
have suppliers who are able to ship products directly to the customer.
Websites like Amazon, eBay, and Asos are also able to offer more choice
because they have marketplaces. These marketplaces allow users and
small business owners to sell new and used products. The host, whether it be Amazon, eBay, Asos or some other marketplace - takes a
cut from the final or fixed price the product is sold at. This allows
suppliers, and entrepreneurs to have a platform to advertise their
product to a large number of customers. This is a stark contrast to deal
sites that only sell products themselves as they don’t have marketplaces.
Marketplaces give customers a great range of choice:
Website
No.
of
products on
offer
Amazon.co.uk 21 million41
eBay.co.uk
16 million42
Asos.co.uk
65,00043
Groupon.co.uk 200044
Wowcher
40045
39
Ecommerce News. (2013). Ecommerce in the United Kingdom. Available: http://ecommercenews.eu/ecommerce-per-country/ecommercethe-united-kingdom/. Last accessed 07/02/15.
40 Internet Retailer. (2013). Continuing a long-standing pattern of gradual consolidation, the top-tier e-retailers in the Top 500—viewed as a
group—grew faster than their smaller brethren, reflecting their vast marketing resourc. Available:
https://www.internetretailer.com/top500/top10/. Last accessed 07/02/15.
41 Grey, P. (2014). How Many (More) Products Does Amazon Sell? Available: http://export-x.com/2014/08/14/many-products-amazon-sell-2/.
Last accessed 01/02/15.
42 Webretailer. (2003). Andy by Andy Statistics You Won't Find on eBay. Available: http://www.webretailer.com/articles/ebay-statistics.asp.
Last accessed 01/02/15.
43 Asos. (2014). About ASOS. Available: http://www.asos.com/infopages/pgeaboutus.aspx. Last accessed 16/02/15.
44 Groupon. (2015). Groupon Goods. Available: http://www.groupon.co.uk/goods. Last accessed 01/02/15.
45 Wowcher. (2015). Shopping. Available: http://www.wowcher.co.uk/nationwide/ipswich. Last accessed 19/02/15.
LivingSocial
20046
Although I was not able to get information on every sites monthly visits
for the last decade, I was able to find information via Google Trends as
to how often certain terms were searched in comparison to other terms.
47
There is a high chance that people who search ‘amazon’ or ‘groupon’
or ‘livingsocial’ in the UK are most likely looking for www.amazon.co.uk,
www.groupon.co.uk. www.livingsocial.com/gb respectively. We want to
see that 100% of the time, the user has found what they were looking
for when they searched a particular term:
I did the same for the rest of the websites I will be analysing:
46
LivingSocial. (2015). Online shopping deals. Available: https://www.livingsocial.com/products/uk?sort_view=true. Last accessed 19/02/15.
Google Trends (2015). Available:
http://www.google.co.uk/trends/explore#q=groupon%2C%20wowcher%2C%20living%20social&cmpt=q&tz =. Last accessed:
18/01/15
47
48
For Amazon.co.uk I was able to find information via Google Trends as to
how often ‘Amazon Inc.’ – the company – is searched for as well as the
term ‘amazon’ in the UK.49 There is a high chance users are trying to get
to amazon.co.uk when they search for either term which is why I’ve
included them both in the graph. When it comes to search, we want to
see that 100% of the time, the user has found what they were looking
for when they searched a particular term. I was unable to find
information as to how many products the websites listed on a yearly
basis, but I was able to find information on how much those products
are worth on a yearly basis, i.e. cost of sales.50 This includes everything
it costs to buy, store and ship the products. I hope this data would give
some indication as to what effect a large range of products has on
monthly visits:
48
Google Trends (2015). Available:
http://www.google.co.uk/trends/explore#q=amazon,+ebay,+groupon,+wowcher,+livingsocial&cmpt=q&geo=GB . Last accessed:
18/01/15
49 Google. (2015). Google Trends. Available: http://www.google.co.uk/trends/explore#q=/m/0mgkg,+amazon&cmpt=q&geo=GB. Last accessed
16/02/2015.
50 Amazon. (2008). 2007 Amazon Annual Report. Available: http://media.corporate-ir.net/media_files/irol/97/97664/2007AR.pdf. Last
accessed 16/02/2015, Amazon. (2011). 2010 Amazon Annual Report. Available: http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irolreportsAnnual. Last accessed 16/02/2015, Amazon. (2014). 2013 Amazon Annual Report. Available: http://phx.corporateir.net/phoenix.zhtml?c=97664&p=irol-reportsAnnual. Last accessed 16/02/2015.
Year Cost
of
sales
in
millions ($)
2005 6,451
2006 8,255
2007 11,482
2008 14,896
2009 18,978
2010 26,561
2011 37,288
2012 45,971
2013 54,181
Year Operating
costs
in
millions
($)51
2005 2,292
2006 3,289
2007 5,296
2008 4,237
2009 4,790
2010 4,538
2011 5,818
2012 6,968
2013 7,640
51
eBay. (2008). 2013 eBay 10-K Report. Available: http://investor.ebayinc.com/secfiling.cfm?filingID=950134-083741&CIK=1065088#F36571E10VK_HTM_109. Last accessed 16/02/2015, eBay. (2011). 2010 eBay 10-K Report. Available:
http://investor.ebayinc.com/secfiling.cfm?filingID=1065088-113&CIK=1065088#EBAY10K20101231_HTM_SBA63A7617BAAB69725EBF4A45A4D8D34. Last accessed 16/02/2015, eBay. (2014). 2013 eBay 10K Report. Available: http://investor.ebayinc.com/secfiling.cfm?filingID=1065088-14-10&CIK=1065088#EBAY201310K_HTM_SFE32BE5C818AB675B8F5E79436469A4C. Last accessed 16/02/2015.
Year Operating
costs
in
thousands
(£)52
2005 7,949
2006 11,668
2007 24,488
2008 37,432
2009 83,184
2010 111,803
2011 173,042
2012 370,816
2013 490,463
As you can see here, the more products a site lists, the more traffic the
site receives. If we look at Groupon, we find that less products means
there’s less traffic53 to the site:
52
Asos. (2010). Asos Annual Report & Accounts 2009. Available: http://www.asosplc.com/~/media/Files/A/ASOS/resultsarchive/pdf/AnnualReport2009.pdf. Last accessed 16/02/2015, Asos. (2013). Asos Annual Report & Accounts 2012. Available:
http://www.asosplc.com/~/media/Files/A/ASOS/results-archive/pdf/asos_plc_annual_report_2012.pdf. Last accessed 16/02/2015, Asos.
(2014). Asos Annual Report & Accounts 2014. Available: http://www.asosplc.com/~/media/Files/A/ASOS/resultsarchive/ASOS_Report_2014%20FINAL.pdf. Last accessed 16/02/2015.
53 Google. (2015). Google Trends. Available: http://www.google.co.uk/trends/explore#q=/m/06zkw7m,+groupon&cmpt=q&geo=GB. Last
accessed 16/02/2015.
Year Operating
costs in
millions
($)54
2011 1,584
2012 1,516
2013 1,425
2014 1,564
Perhaps there isn’t enough data on deal sites to conduct this part of the
study thoroughly. We can also only conduct it on Groupon at this point
as information on how well competitors like Wowcher and LivingSocial
are doing is unavailable. But we can clearly see from looking at other
ecommerce sites that choice brings more users. The deals industry
needs to find a way to give users more choice as this will lead to more
visits to the site.
54
Groupon. (2013). Groupon Announces Fourth Quarter and Fiscal Year 2012 Results. Available:
http://investor.groupon.com/releasedetail.cfm?releaseid=743818. Last accessed 18/02/1, Groupon. (2014). Groupon Announces Fourth
Quarter and Fiscal Year 2013 Results. Available: http://investor.groupon.com/releasedetail.cfm?releaseid=827222. Last accessed 18/02/15,
Groupon. (2014). Groupon Announces Fourth Quarter and Fiscal Year 2014 Results. Available:
http://investor.groupon.com/releasedetail.cfm?releaseid=896215. Last accessed 18/02/15.
6. Price has a larger effect on the amount of products sold than traffic
Does price or traffic have a bigger influence on sales? Price-sensitive
consumers are drawn to low prices which is why we can assume a lot
of them visit deal sites. However, traffic does have a cumulative effect
on sales, meaning if we had two ecommerce sites that were exactly the
same, yet one had ten million more monthly visits, we can assume that
it would also have more sales. But does this also apply to deal sites? In
this short section I will be comparing products and traffic from three
deal sites.
I understand that the main driving force that brings customers to deal
sites is local deals as they’re more known for these sorts of deals rather
than products. So traffic may be slightly skewed in the sense that
customers are not necessarily visiting the site for discounted products,
but for local deals. However, these customers are likely to view and
purchase products. A significant portion of users must also come to the
site from google search results, and from viewing newsletters that the
deal company sends. The newsletters often feature products as well as
holidays and local deals. Overall, it seems that there are a whole host of
reasons as to why users would visit. Below, we can see that Groupon UK
has almost double the amount of monthly visits in comparison to
Wowcher and LivingSocial in the July to October 2014 period:
55
56
55
56
Similarweb. (2014). Groupon.co.uk. Available: http://www.similarweb.com/website/groupon.co.uk. Last accessed 06/11/2014.
Similarweb. (2014). Wowcher.co.uk. Available: http://www.similarweb.com/website/wowcher.co.uk. Last accessed 06/11/2014.
57
In the next section I shall compare products, prices and monthly visits
on deal sites in order to see if price takes any precedence. The products
compared in these examples are in different categories and may vary
slightly from one another. However, I’ve tried to find products that are
similar in order to ensure that this analysis is fair:
57
Similarweb. (2014). LivingSocial.com. Available: http://www.similarweb.com/website/livingsocial.com. Last accessed 06/11/2014.
Deal
Charger Cables in
Choice of Lengths
For iPhone 4 or 558
Charger Cables in
Choice of Lengths
For iPhone 4 or 559
Charger Cables in
Choice of Lengths
For iPhone 4 or 560
Month
July
Price
£2.99
Amount sold
10,000+
August
£2.99
5000+
September £2.99
5000+
It’s clear that price has a bigger influence in comparison to monthly
visits. I would assume that the site had exhausted the demand for
iPhone cables which is why there is a significant drop in sales in August
and September. Even if traffic remained the same or increased slightly,
I believe that the amount of iPhone cables sold wouldn’t be over
however many were sold in July 2014.
58
Groupon. (2014). Charger Cables in Choice of Lengths For iPhone 4 or 5. Available: http://www.groupon.co.uk/deals/national-deal/gg-groupongoods-global-gmb-h-5-13441/40392282. Last accessed 05/11/14.
59
Groupon. (2014). Charger Cables in Choice of Lengths For iPhone 4 or 5. Available: http://www.groupon.co.uk/deals/special/gg-groupon-goodsglobal-gmb-h-5-192/43516570. Last accessed 03/11/14.
60
Groupon. (2014). Charger Cables in Choice of Lengths For iPhone 4 or 5. Available: . Last accessed 29/10/14.
Deal
Snow Paw Tall Button
Sheepskin Boots in
Choice of Colour61
Women’s Chilli Pepper
Faux Fur Lined Boots62
Ladies' Classic Button
Boot in a Choice of Three
Heights63
Month
August
Price
£56.99
Amount sold
338
September £16.99
1000+
October
394
£16.99
We can clearly see that price was a bigger influence in September.
Despite the fact that the Chilli Pepper Faux Fur Lined Boots that were
sold in August 2014 are not worth as much Snow Paw Tall Button
Sheepskin Boots that were sold in September 2014, the amount of boots
sold in September is over three times higher in comparison to the month
before. Even though monthly visits had decreased that month, sales had
increased simply because of the price. October 2014 however is a great
61
Groupon. (2014). Snow Paw Tall Button Sheepskin Boots in Choice of Colour. Available: http://www.groupon.co.uk/deals/national-deal/gggroupon-goods-global-gmbh-16-6/44455792. Last accessed 04/11/14.
62
Groupon. (2014). Women’s Chilli Pepper Faux Fur Lined Boots.Available: http://www.groupon.co.uk/deals/national-deal/gg-groupon-goodsglobal-gmb-h-1479-9/47547730. Last accessed 30/10/14.
63
Groupon. (2014). Ladies' Classic Button Boot in a Choice of Three Heights. Available: http://www.groupon.co.uk/deals/national-deal/gg-groupongoods-global-gmb-h-809-331164/48185381. Last accessed 05/11/14.
surprise. Despite the fact that traffic had increased, sales were three
times less the previous month. This I argue may be because the site had
exhausted demand for that particular product.
Deal
Ottoman Storage Bed
Frame64
Ottoman Storage Bed
Frame65
Side Lift Ottoman
Storage Sleigh Bed66
Month
July
Price
£154.96
Amount sold
326
August
£129.95
301
September
£299.99
123
It seems that monthly visits had a bigger influence in comparison to
price. Both monthly visits and the number of Ottoman beds sold
decreased in August and September. In August there were less sales
despite the fact that the price of the product had dropped. This could be
because there were less monthly visits to the site that month. The
64
Groupon. (2014). Ottoman Storage Bed Frame . Available: http://www.groupon.co.uk/deals/national-deal/gg-bed-and-mattress-world43/39951693. Last accessed 05/11/14.
65
Groupon. (2014). Ottoman Storage Bed Frame. Available: http://www.groupon.co.uk/deals/national-deal/gg-bed-and-mattress-world-247/41768089. Last accessed 04/11/14.
66
Groupon. (2014). Side Lift Ottoman Storage Sleigh Bed. Available: http://www.groupon.co.uk/deals/national-deal/gg-groupon-goods-global-gmbh-1816-28/44785741. Last accessed 01/11/14.
significant drop in sales in September is also because the price of the
Side Lift Ottoman Storage Sleigh Bed is more than double the price of
the Ottoman Storage Bed Frame sold in August.
Deal
1m iPhone Charging
Cable67
3m iPhone Charge &
Sync Cables68
2m iPhone Charge &
Sync Cables69
Month
July
Price Amount sold
£3.99 722
August
£5
479
September
£4
474
Prices and traffic seem to have had a mixed influence on sales. With
iPhone cable sales in August 2014, we saw the price increase to £5 and
a drop in sales. However in September, prices dropped to £4 but sales
were even lower than the previous month. This may be because in the
67
Wowcher. (2014). 1m iPhone Charging Cable. Available: http://www.wowcher.co.uk/deals/national-deal/deal-197434-detail/3-99-planetaccessories-1m-iphone-charging-cable/deal.html?ito=wowcher_social_SCM00003_SHARE_197434. Last accessed 05/11/14.
68
Wowcher. (2014). 3m iPhone Charge & Sync Cables. Available: http://www.wowcher.co.uk/deals/national-deal/deal-202760-detail/5-planetaccessories-3-metre-charge-cable-iphone/deal.html?ito=wowcher_social_SCM00003_SHARE_202760. Last accessed 03/11/14.
69
Wowcher. (2014). 2m iPhone Charge & Sync Cables. Available: http://www.wowcher.co.uk/deals/national-deal/deal-214403-detail/4-planetaccessories-2m-charge-cable-iphone-7-2/deal.html?ito=wowcher_social_SCM00003_SHARE_214403. Last accessed 29/10/14.
same month, monthly visits to the site had dropped by around 12% in
comparison to August.
Deal
Month
Fleece-Lined Boots - 3 August
Colours! 70
Ladies' Winter Boots - 15 September
Designs! 71
Ladies' Winter Boots - 13 October
Designs! 72
Price
£12
Amount sold
610
£10
1309
£10
1212
Price had a much larger influence on sales in September and October in
comparison to monthly visits. This great increase may also be because
customers are preparing for winter. It’s clear that traffic had significantly
70
Wowcher. (2014). Fleece-Lined Boots - 3 Colours!. Available: http://www.wowcher.co.uk/deals/aberdeen/deal-210147-detail/12-instead-39-urshupair-women-s-fleece-lined/deal.html?ito=wowcher_social_SCM00003_SHARE_210147. Last accessed 04/11/14.
71
Wowcher. (2014). Ladies' Winter Boots - 15 Designs!. Available: http://www.wowcher.co.uk/deals/national-deal/deal-212321-detail/10-urshu-pairladies-winter-boots-worth-30-13/deal.html?ito=wowcher_social_SCM00003_SHARE_212321. Last accessed 30/10/14.
72
Wowcher. (2014). Ladies' Winter Boots - 13 Designs!. Available: http://www.wowcher.co.uk/nationwide/national-deal/deal-239640-detail/10-urshupair-ladies-winter-boots-worth-30-13/deal.html?chain-forward=true&expiredDeal=226410&expiredTitle=10-urshu-pair-ladies-win. Last accessed
05/11/14.
less of an influence on sales in October as monthly visits increased by
around 26%, and yet sales decreased by around 7%.
Deal
Month
Ottoman
Diamante July
Storage Bed73
Side Opening Ottoman August
Storage Bed74
Ottoman
Diamante September
Storage Bed75
Price
£149
Amount sold
156
£129
49
£149
58
It’s clear that nor prices or monthly visits had an influence on sales. The
price dropped and there were more visitors to the site, and sales did not
increase. It may be that the site had exhausted the demand for Ottoman
beds. In September, the price increased, while traffic decreased, and yet
more Ottoman beds were sold in comparison to August.
73
Wowcher. (2014). Ottoman Diamante Storage Bed. Available: http://www.wowcher.co.uk/nationwide/national-deal/deal-215239-detail/149-ftafurnishing-single-faux-leather-ottoman/deal.html?chain-forward=true&expiredDeal=181287&expiredTitle=169-instead-580-fta-fur. Last accessed
05/11/14.
74
Wowcher. (2014). Side Opening Ottoman Storage Bed. Available: http://www.wowcher.co.uk/deals/national-deal/deal-193641-detail/129-instead429-99-mattress-shed-opening-ottoman/deal.html?ito=wowcher_social_SCM00003_SHARE_193641. Last accessed 04/11/14.
75
Wowcher. (2014). Ottoman Diamante Storage Bed. Available: http://www.wowcher.co.uk/deals/national-deal/deal-215239-detail/149-ftafurnishing-single-faux-leather-ottoman/deal.html?ito=wowcher_social_SCM00003_SHARE_215239. Last accessed 01/11/14.
Deal
Three-Metre Cable for iPhone
4/576
Three-Metre Cable for iPhone
4/577
Three-Metre Cable for iPhone
4/578
Month
July
Price Amount sold
£2
3441
August
£2
1963
September £2
1000
It’s unclear as to whether price or monthly visits had an influence on
iPhone cable sales. Despite the fact that there were 8% more monthly
visits in August 2014 in comparison to July 2014, sales in August did not
exceed July. Both sales and monthly visits did however decrease in
September. The price of the product remained the same, so it may be
that the site had exhausted a large amount of their frequent visitors.
76
LivingSocial. (2014). Three-Metre Cable for iPhone 4/5. Available: https://www.livingsocial.com/deals/1194878-three-metre-cable-for-iphone-4-5or-android. Last accessed 05/11/14.
77
LivingSocial. (2014). Three-Metre Cable for iPhone 4/5. Available: https://www.livingsocial.com/deals/1240914-three-metre-cable-for-iphone-4-5or-android. Last accessed 03/11/14.
78
LivingSocial. (2014). Three-Metre Cable for iPhone 4/5. Available: https://www.livingsocial.com/deals/1282556-three-metre-cable-for-iphone-4-5or-android. Last accessed 29/10/14.
Deal
Month
Lace-Up Wellie Boots79
August
Ladies' Winter Boots in September
Choice of Styles80
Ladies' Winter Boots in October
Choice of Styles81
Price
£19
£10
Amount sold
12
191
£15
11
Price had a bigger influence in comparison to monthly visits in this
instance. In September, monthly visits had decreased by around 15% in
comparison to the previous month, and yet sales increased 15 times
from 12 to 191. This is because the price had dropped from £19 to £10.
When the price increased in October to £15, sales decreased 15 times
to 11.
79
LivingSocial. (2014). Lace-Up Wellie Boots . Available: https://www.livingsocial.com/gb/cities/1569-national-uk/deals/1238212-lace-up-wellieboots. Last accessed 04/11/14.
80
LivingSocial. (2014). Ladies' Winter Boots in Choice of Styles.Available: https://www.livingsocial.com/deals/1260882-ladies-winter-boots-inchoice-of-styles. Last accessed 30/10/14.
81
LivingSocial. (2014). Ladies' Winter Boots in Choice of Styles . Available: https://www.livingsocial.com/gb/cities/1569-national-uk/deals/1280170ladies-winter-boots-in-choice-of-styles. Last accessed 05/11/14.
Deal
Ottoman Bed82
Ottoman Storage
Bed83
Ottoman Bed84
Month
July
August
Price
£119
£129
Amount sold
19
8
September
£99
58
It’s clear that price has a bigger influence in comparison to monthly
visits. Even when monthly visits decreased by 15% from August to
September, sales increased by over 7 times. This is because the price of
the product had dropped to £99 in September. In the months previous,
monthly visits were higher, but because the price was also high, sales
were lower.
I was unable to find data on how well similar products sold on eBay and
Amazon, but we can see from the data we have that when it comes to
discounted goods, monthly visits doesn’t seem to effect sales as much
as price. The prices displayed by these deal sites however, are not
dynamic. Which means that even if they display the lowest possible
price, competitors like Amazon and eBay can sell the same product at an
82
LivingSocial. (2014). Ottoman Bed. Available: https://www.livingsocial.com/deals/1226056-ottoman-bed-from-119-with-mattress-from-259. Last
accessed 05/11/14.
83
LivingSocial. (2014). Ottoman Storage Bed. Available: https://www.livingsocial.com/gb/cities/1569-national-uk/deals/1239650-ottoman-storagebed-from-129. Last accessed 04/11/14.
84
LivingSocial. (2014). Ottoman Bed. Available: https://www.livingsocial.com/deals/1275644-ottoman-bed-from-99-with-mattress-from-219. Last
accessed 01/11/14.
even lower price. This is something the deals industry needs to
implement in order to be competitive with other ecommerce sites.
Overall, when it comes to sales, price has a bigger influence then traffic.
7. The price gap needs to be closed
Dynamic prices have made online retailing ferociously competitive.
Whether it’s done through marketplaces or through an algorithm, it’s an
advantage that many sites have not exploited. Current deal sites in
particular have not implemented this feature. This means that they are
both losing opportunities to be more profitable and opportunities to
offer the lowest possible price.
All deal sites are competing to have the lowest possible price rather than
a price that represents how much something is worth in the market. The
market constantly shifts and so deal sites must display prices that are
competitive, but still the lowest possible price. In this section, I shall
outline how prices are not dynamic, how they are still the central focus
on deal sites and a possible solution to the problem.
Deal sites do not always sell products at the most competitive price:
*
Amazon
Beats by Dr. £127.39
Dre Pill 2.0
Bluetooth
Wireless
Diane £23.30
Diane Von
Furstenberg
EDP 100ml
Fake Bake
£14.99
Airbrush
Luxurious
eBay**
Groupon Wowcher
£124.99 £99.98
£21.27
£14.99
£19.99
Living
Social
Money
saved by
purchasin
g on deal
site
£30.01
£1.28
£11.00 £3.99
Golden
Bronze
Instant SelfTan (210ml)
Vax 10 in 1
Steam
Cleaner
Morphy
Richards
Adjustable
Apron
Oral-B
Advanced
Power 400
Electric
Toothbrush
Pifco TwoTier Steamer
2-Litre HiTec
Hydration
Backpack
McAfee
Internet
Security
Suite 2015
75ml
Davidoff
Cool Water
for Men
After Shave
Splash
Men’s
Emporio
Armani
Watch
(AR5889
£64.85
£69.95
£14.94
£20.49
£8.45
£9.49
£19.99
£13.95
£6.99
£7.99
£9.75
£5.99
£8.92
£17.45
£159.50
£129
£41.99
£22.86
£12
£2.94
£9
£12.98
-£0.55
£0.97
£12.99
-£5.00
£14
£15.98
-£8.01
-£7.06
£149
-£20
iPad Air 2
64GB with
Wi-Fi
LG 42"
LB550V LED
Full HD with
HD Freeview
8" Dell
Venue Pro
Tablet 32GB
Thomas &
Friends Kids'
WalkieTalkie Set
£403
£404
£293.99
£294.99 £269.99
£194.99
£129.99
£12.49
£13
£449
-£46.00
£24.00
£120
£9.99
£16
-£3.51
*See product price comparisons section in the bibliography for all the
URLs in this table. **These are the lowest prices found on eBay for
products that were ‘Buy it Now’, brand new and based in the UK.
These prices do not include shipping, but you can see that there are still
instances where Amazon and eBay sell products cheaper in comparison
to the deal sites. This I believe is inevitable, as Amazon and eBay are
marketplaces where prices are a lot more dynamic in comparison to deal
sites. Amazon also has an algorithm in place which allows them to
change prices on certain products based on how many are sold, how
many times it’s viewed and how often it’s been shared. There are also
certain instances where deal sites could be making more money on a
certain product. As you can see on the above table, the Beats by Dr. Dre
Pill 2.0 speakers are at quite an attractive price on Groupon, but I
imagine they could increase the price to £109.99 or perhaps £114.99 and
still be as competitive as the rest of the market. So because deal sites do
not have dynamic prices, they have a tough job trying to be competitive.
From the above table, we can see that 54% of the deals have the lowest
price in comparison to Amazon and eBay. Some may argue that it’s not
prices that drives deal sites but traffic has a larger effect. We can see
from section 6 in this study that price takes precedence over traffic.
There are two solutions to the issues deal sites have when it comes to
prices. The first solution is to make the prices dynamic. This would mean
that no prices would be negotiated between the deal company and the
supplier, and that prices would be determined by an algorithm which
compares the products price with the rest of the market, similar to
Amazon. However, this may not be the best way to negotiate deals as
we have found that Amazon can afford to sell products at a loss85, while
deal sites and their suppliers may not be able to do so. We also don’t
want an algorithm to increase the prices on deals that are live as
customers may find this unfair, despite the fact that the price may still
be the lowest in the market.
The second solution I propose is to make prices more flexible using a
price trajectory system. Deal sites have the freedom to experiment with
the ways they can price and sell products. Traditional ecommerce
competitors like Amazon rarely sell products outside of the traditional
method of having one price for a product that everyone pays for. The
site has dynamic pricing which primarily drops prices if a product isn’t
selling well, and then increases it if it is. In the past, deal sites have sold
products in the opposite way. If more people bought a product, the price
went down. This allowed the market to decide how much the product
would cost and how much volume can be shifted. For instance
Mercata.com had a business model that decreased the price of a
product, if the amount of people that wanted to buy it at a particular
price increased. They called it a “PowerBuy” auction cycle:
85
Fung, B. (2013). How Apple Tried to Turn the E-Book Industry Against Amazon—and Lost. Available: http://www.nationaljournal.com/tech/how-apple-tried-toturn-the-e-book-industry-against-amazon-and-lost-20130710. Last accessed 19th Jan 2014.
86
What’s great about this is that the user would be notified if the product
is available at their desired reservation offer. If a substantial amount of
products are sold, more revenue is made. The market ultimately decides
how much stock is sold and how much of a discount is available. The
problem, with this business model is that it requires a sizeable user-base.
Users are attracted to the prospects of purchasing a product for a
potentially low price, and so there is a chance that users would avoid
purchasing the item until it’s offered for the lowest possible price.
Without a sizeable user-base, this low price may never be reached,
which means customers are more likely to shop around for the same
item at a lower price. From the demise of Mercata, we can also see that
this business model does not work permanently. As soon as a groupbuying site like Mercata loses users that are willing to pay for items at
their highest price, they lose their core user-base that are willing to pay
at the lowest price. The problem however, may have been that Mercata
didn’t give enough information to its users.
Mobshop.com, like Mercata.com, also had a price drop trajectory
system. But what’s different, is that the user were given more
86
R.Kauffman, B.Wang (2002). Bid Together, Buy Together: On the efficacy of group-buying business models in internet-based selling. Minnesota:
Carlson School of Management, University of Minnesota. P.17
information as to how much stock has to be sold in order for the price
to go down:
87
This is a great improvement in comparison to Mercata, as customers
now know what level of stock should be sold in order for the price to
drop. Mobshop also offered other features such as ‘Save-a-Spot,’ ‘Buyer
Flash,’ and ‘Click-and-Tell’ in order to satisfy customers buying demands,
create a sense of urgency, and promote the website:
87
R.Kauffman, B.Wang (2002). Bid Together, Buy Together: On the efficacy of group-buying business models in internet-based selling. Minnesota:
Carlson School of Management, University of Minnesota.
88
“Click-and-tell” allowed customers to email other potential customers
about a particular auction. “Save-a-spot” allowed potential customers
to reserve a price for a particular product. “Buyer flash” let potential
customers know in an email reminder that the price had reached a
specified level, or that a certain amount of time was left with a certain
product. As you can see here, Mobshop had a number of interesting
features when it came to selling products, and did everything they could
in order to create a sense of urgency with their customers.
Letsbuyit.com which mainly operated in Europe had a “co-buying”
model:
R.Kauffman, B.Wang (2002). Bid Together, Buy Together: On the efficacy of group-buying business models in internet-based
selling. Minnesota: Carlson School of Management, University of Minnesota.
88
89
Customers have two choices. They can either select “I want to buy at the
best price only,” which would mean that the customer’s choice to buy
the product was on the condition that they can buy the product at the
lowest possible price, or they can select “I will buy at the price reached
when the co-buy closes,” means the customer will buy the product no
matter how low the price goes. This feature seems like an effective way
of still being able to sell products to customers that only want it at the
lowest possible price. Without this feature, this demographic wouldn’t
have a choice at all.
The group-buying functions that sites like Mercata and Mobshop had are
far from perfect. Here’s a list90 of group-buying sites and the events
describing the companies path to success and failure from ‘New buyers’
arrival dynamic pricing market microstructure: The case of group-buying
on the internet:’
R.Kauffman, B.Wang (2002). Bid Together, Buy Together: On the efficacy of group-buying business models in internet-based
selling. Minnesota: Carlson School of Management, University of Minnesota. P.22
90
Kauffman, R., Wang, B. (2001). NEW BUYERS’ ARRIVAL UNDER DYNAMIC PRICING MARKET MICROSTRUCTURE: THE CASE OF
GROUP-BUYING DISCOUNTS ON THE INTERNET. University of Minnesota. p.29.
89
Website Events describing the companies path to success and
failure
C-Tribe
Let’s Buy
It
Mercata
MobShop
OnlineCh
oice
 Unique online group-buying of offline retail gift
certificates,
 Redesigned Web site in June 2000 to allow for
access through multiple channels such as Internet,
and Web
mobile
devices,
 telephone,
A highly visible
site
in Europe,
 Loyalty
gaveinfrequent
buyers
Filed forprogram
bankruptcy
December
2000 cash-back
due to
rewards,
financial constraints,
 Closed
sometime
in late
2000. 2001 after the
Resumed
operation
in February










SHOP2get
her
infusion
of additional
funding,
High profile
startup backed
by Microsoft coCurrentlyPaul
facing
the problem of lack of critical
founder
Allen,
mass
interest.
One ofmarket
two early
market leaders in group-buying,
Early involvement in retail and wholesale demand
aggregation,
Increasing market interest during first half of
Ceased
2000, operation in January 2001 due to a
shortage
of funding.
The
second
of two early innovators in groupbuying,
Started
experiencethrough
declining
market
Uniquelytopositioned
offering
offollowing
groupsummer
2000,
buying services for electricity, natural gas,
Changed
telephonestrategic
service, focus
etc, to demand aggregation
software
in January,
Advertisedlicensing
a customer
base of2001
460,000
consumers and businesses in March 2001,
 Group-buying
forthough,
small businesses on
Folded by late services
April 2001
office furniture and equipment, travel, employee
benefits and corporate gifts,
 Redirected its demand aggregation services
toward education market in April 2000.
 Acted as a group-buying software vendor, in
addition to providing a demand aggregation
marketplace for consumers,
 Three types of buying pools give buyers the
flexibility of choosing format,
 But requires buyer cognitive effort to understand
benefits of participating in the different buying
pools.
The authors, Robert J. Kauffman and Bin Wang have identified four
reasons why these sites met both success and failure:
VolumeB
uy
1. Group-buying sites may have failed because they were not able to
gather enough users to their site,
2. There are less stipulations when it comes to starting and running a
group-buying site, which make it difficult to have or maintain a
competitive advantage,
3. Users that visited group-buying sites tend to be price-sensitive, and
would be very willing to switch to other sites,
4. A continuing decline in customers led to lower participation rates
on deals, which consequently leads to even less customers visiting
the site.91
The idea of giving consumers a choice of price, may seem unattractive
for some. I believe this may be because having several prices displayed
to you may be off putting considering that customers may not be able
to purchase products at the lowest possible price. If deal sites
incorporated a price trajectory system, they may not associate deal sites
with discounted products, but rather as a place where you may not
always get the best price on a product depending on demand. The price
drop trajectory system is however extremely useful for products which
we don’t know the market value of. The deals industry pioneers in selling
products that are new to the market. Both Mobshop and Mercata sold
products that were new to consumers. Mobshop for instance sold the
Kauffman, R., Wang, B. (2001). NEW BUYERS’ ARRIVAL UNDER DYNAMIC PRICING MARKET MICROSTRUCTURE: THE CASE OF
GROUP-BUYING DISCOUNTS ON THE INTERNET. University of Minnesota. p.29-30.
91
Palm Pilot V at a considerable discount in the year 2000.92 It was sold at
$224.95. The manufacturer, Palmgear Inc, was selling it at $309.95.
Mobshop was offering a 27% discount on a product that hadn’t at that
point captured the attention of average consumers. When DVDs were
first available in the market, both Mobshop and Mercata also sold them
at a significant discount. On Mobshop.com, The Matrix DVD
accumulated 400 orders and finally sold at $9.95.93 Mercata also sold
DVD players lower than its closest competitor. For instance, they sold
the Toshiba 3109 for $289.40 while eTown charged $291.35. eTown and
Outpost.com also sold the Toshiba SD1200 for $245.60 and $249.99
respectively, while Mercata priced it at $159.95 at its lowest point. At its
highest point, it was priced at $249.99.94Current deal sites are also great
at selling new products:
Website
Groupon
92
Product
Price
Amount sold
Selfie
Stick £7.98 - £9.98 1000+
(£7.98) Plus
Bluetooth.
Clicker
Remote
R.Kauffman, B.Wang (2002). Bid Together, Buy Together: On the efficacy of group-buying business models in internet-based selling. Minnesota:
Carlson School of Management, University of Minnesota. P.33
93
Bid together, buy together page 33
94
Bid together, buy together page 33
Wowcher
LivingSocial
Website
Groupon
95
(£9.98) (60%
Off) 95
Bluetooth
£9
Selfie Stick &
Remote96
Selfie
Stick £9
and
Bluetooth
Remote97
Product
Price
Friendship
£7.99
Loom
Bracelet
Maker
for
£7.99
with
Free Delivery
473
1341
Amount sold
1000+
Groupon. (2014). Selfie Stick (£7.98) Plus Bluetooth. Clicker Remote (£9.98) (60% Off). Available: http://www.groupon.co.uk/deals/nationaldeal/gg-groupon-goods-global-gmbh-6-19-1714/43440501. Last accessed 30/11/14.
96
Wowcher. (2014). Bluetooth Selfie Stick & Remote. Available: http://www.wowcher.co.uk/deals/national-deal/deal-230045-detail/9-instead-29aven-republic-bluetooth-selfie-stick/deal.html?ito=wowcher_social_SCM00003_SHARE_230045. Last accessed 30/11/14.
97
LivingSocial. (2014). Selfie Stick and Bluetooth Remote. Available: https://www.livingsocial.com/deals/1331636-selfie-stick-and-bluetooth-remote.
Last accessed 30/11/14.
Wowcher
LivingSocial
(up to 67%
off) 98
Bracelet
£5
Making Kit99
Friendship
£7
Loom
Bracelet
Maker Kit100
362
1495
However, the risk with selling new products is that suppliers don’t know
if the market is interested in them. One of the elements that may
discourage customers, especially with electronics, is the price. If deal
sites had a price drop trajectory system and a “Save-a-spot” feature,
then we’ll be able to see how much demand there is for a particular
product and price accordingly. That way, we’re able to introduce new
products at a competitive price, rather than introduce new products at
full price, which a lot of customers may find a risky investment. It’s clear
that the price drop trajectory system may be more suited to new
products, in comparison to existing ones in the market. Here is an
example of what the site may look like:
98
Groupon. (2014). Friendship Loom Bracelet Maker for £7.99 with Free Delivery (up to 67% off). Available:
http://www.groupon.co.uk/deals/national-deal/gg-groupon-goods-global-gmbh-4-674/33712584. Last accessed 30/11/14.
99
Wowcher. (2014). Bracelet Making Kit. Available: http://www.wowcher.co.uk/deals/national-deal/deal-139345-detail/6-instead-22-99-emyubcolourful-kids-bracelet/deal.html?ito=wowcher_social_SCM00003_SHARE_139345. Last accessed 30/11/14.
100
LivingSocial. (2014). Friendship Loom Bracelet Maker Kit. Available: https://www.livingsocial.com/deals/1200316-friendship-loom-braceletmaker-kit. Last accessed 30/11/14.
With products that are relatively new to the market like smart watches,
manufacturers may set a price for products but we have no idea what
the market value is of the product. With the price trajectory system, we
can get a good idea as to how much the market is willing to pay for a
product. But how can we solve the problem we have with deal sites and
their inability to be as flexible as marketplaces with all other products? I
believe a solution to this problem is to have two prices on deal sites,
instead of five or six which is what older group-buying sites had. The
price would still decrease once a certain amount of stock has been sold.
That way, deal sites have the flexibility to be more competitive with sites
like Amazon and eBay. LivingSocial has implemented something fairly
similar:
101
On certain items, users see the above page. This page however changes
to this:
101
LivingSocial. (2015). Ray-Ban Shiny Silver Aviator Sunglasses.Available: https://www.livingsocial.com/products/uk/tag/fashion/120048-rayban-shiny-silver-aviator-sunglasses. Last accessed 19/02/15.
102
However, their aim with this particular feature isn’t to be more
competitive, but to create a sense of urgency so customers can only get
the product at the lower price in the next ten minutes. These methods
of ‘limited time, lower prices’ can be circumvented by using a different
web browser or clearing your cookies. Most customers would be free
from this sense of urgency on the site. Therefore, I don’t think this has
given customers the best user experience overall.
Below we have the price comparison table that was displayed in earlier
in this section that emphasised that there was a significant gap in prices:
Amazon eBay
Groupon Wowcher Living
Social
Beats by Dr. £127.39 £124.99 £99.98
Dre Pill 2.0
102
Two
tier
priced
deal
sites
£120 £125
LivingSocial. (2015). Ray-Ban Shiny Silver Aviator Sunglasses.Available: https://www.livingsocial.com/products/uk/tag/fashion/120048-rayban-shiny-silver-aviator-sunglasses. Last accessed 19/02/15.
Bluetooth
Wireless
Diane Diane Von
Furstenberg
EDP 100ml
Fake Bake
Airbrush
Luxurious
Golden
Bronze
Instant SelfTan (210ml)
Vax 10 in 1
Steam
Cleaner
Morphy
Richards
Adjustable
Apron
Oral-B
Advanced
Power 400
Electric
Toothbrush
Pifco TwoTier
Steamer
2-Litre HiTec
Hydration
Backpack
McAfee
Internet
£23.30
£21.27
£14.99
£14.99
£64.85
£69.95
£14.94
£20.49
£8.45
£9.49
£19.99
£13.95
£6.99
£7.99
£9.75
£5.99
£19.99
£20£22
£11.00 £13£15
£41.99
£62£71
£12
£13£22
£9
£12.98
£7-£11
£12£22
£12.99
£6-£13
£14
£5-£11
Security
Suite 2015
75ml
Davidoff
Cool Water
for Men
After Shave
Splash
Men’s
Emporio
Armani
Watch
(AR5889
iPad Air 2
64GB with
Wi-Fi
LG 42"
LB550V LED
Full HD
with HD
Freeview
8" Dell
Venue Pro
Tablet
32GB
Thomas &
Friends
Kids'
WalkieTalkie Set
£8.92
£17.45
£15.98
£159.50 £129
£403
£7-£18
£149
£404
£120£130
£449
£293.99 £294.99 £269.99
£194.99 £129.99
£12.49
£13
£400£405
£260£295
£120
£115£195
£16
£12£16
Prices in marketplaces change frequently, so deal sites should have the
freedom to be as competitive as possible, otherwise they can miss out
on opportunities to make a profit. With this implementation, deal sites
would be more in line with what the market is willing to pay for certain
products. The site may look something like this:
Although this method may help close the price gap between
marketplaces and deal sites, I believe that there is a big issue as to what
sort of service customers expect from a deal site. There are two options:
1. If customers pay the higher price for the product, they will pay for
it at the listed price, and have it dispatched as soon as possible,
2. If customers pay the higher price for the product, they will have to
wait until the end of the deal, as the aim of a deal site is to sell
products at the lowest possible price to all customers.
Deals are usually live for around a month on most deal sites. We could
have both options available to the customer, as some customers may be
willing to pay more to receive the product quicker. However, one of the
aspects that brings customers to deal sites is low prices. I would argue
that what with the price sensitive nature of customers, option 2 seems
like the best way deal sites could operate because they ultimately still
need to sell products at the lowest possible price. Overall however, it’s
clear that prices that are more dynamic have the potential to surpass
posted-prices as long as there is a broad dispersion of valuations among
customers.
Another issue with the price trajectory system is that the patent for it is
currently owned by its inventors Tom Van Horn, Niklas Gustafsson and
Dale Woodford, who previously worked for Mercata.103 This means that
if anyone wanted to use the price trajectory system, they would have to
request permission from the original inventors beforehand.
8. Conclusion
In the long term, we can see that there are two clear areas the deals
industry could improve upon. The first is with the amount of products
sold on the site. Traditional ecommerce sites like Amazon and eBay have
around 21 and 16 million products listed on their sites respectively while
the biggest deal site, Groupon have around 2000 listed. We have found
that having more products on a site means the site would receive more
traffic. It’s unlikely that deal sites would ever sell as many products as
Amazon, but they can certainly bring more users to their site if they have
more and more products listed on it.
The second is with the price gap. The price trajectory system is just one
of the ways the industry can give more power to consumers and a
unique standpoint in the current ecommerce market. Although I was not
able to come across more sales information on how Powerbuy, Mercata
and Mobshop performed with the business models they had, I’m hoping
that readers at least see that the problem I have stated are areas where
the deals industry can easily improve upon. The deals industry also has
the potential to pioneer new markets by selling new products at a
competitive price. This would be a fantastic step forward, especially
what with the high rate the consumer electronics market is continuing
103
United States Patent. (2003). Demand aggregation through online buying groups. Available: http://www.freepatentsonline.com/6631356.html.
Last accessed 21/03/15.
to move. Smart watches, virtual reality glasses and 3-D printers are just
some of the products that I believe a lot more consumers would buy
through a price discovery process. Consequently, when a large number
of consumers become more confident with a new product, other
consumers would be more likely to purchase it. The number of
purchases that already exist has a positive effect on new orders that
come through, i.e. a positive externality effect.104 The potential to do
this is unique to deal sites as they’re known for displaying both new and
exciting products and competitive prices. I believe that deal sites have
the potential to solve the problem they have with static prices with a
price trajectory system.
The deals industry is in a golden position where they have the potential
to offer customers products in new and exciting ways. As long as they’re
able to offer more products at low but competitive prices, the industry
can continue to thrive.
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© Krishan Vadher, 2015