Groupon, Livingsocial, and digital norms


Regular readers may have noticed that I am a bit of a social media junkie– this blog, Facebook, Twitter — but I am also intrigued by social media sites that are set up only for commercial purposes. It is fun and instructive to watch the evolution of these sites.

Along those lines, a few weeks ago, I wrote about Groupon. The concept: The retailer offers a discount deal in the city of your choice, but only if enough people sign up for it.

The viral power is amazing, because after you sign up for something you want, you contact all your friends asking them to do the same so you can get the deal. Meanwhile, the retailer gets noticed by people with an affinity for his/her product or service, and gets a bundle of cash in prepayments. The folks at Groupon get some kind of fee. Everyone is happy

Now arises a new site, soon to go into business, called Livingsocial. Like Groupon, you can sign up for the deal of the day, and if enough people sign up, the deal is on; but unlike Groupon, if you get three other people to sign up for the deal, you get your coupon for free.

I’m not sure, but I do not think this last feature is going to catch on. I think people will be reluctant to try to get their friends to sign up for a coupon so that they can profit from the experience. I think friends, too, will be put off to think they are being “used” that way
by their digital buddies.One of the things I have learned about social media users might seem a bit paradoxical. People value their
privacy. Huh? People who expose all on their blogs, Facebook pages, and Twitter feeds value privacy? Well, yes, in certain respects. They don’t like receiving commercial spam, even from their real friends. I wonder if the Livingsocial model will feel like it violates that cultural norm.

Time will tell, but in the meantime, please offer your thoughts on the matter.

Paul Levy is the President and CEO of Beth Israel Deconess Medical Center in Boston. He blogs about his experiences at Running a Hospital, one of the few blogs we know of maintained by a senior hospital executive.

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3 replies »

  1. Both these concepts are brilliant (though not new) as they are a win-win-win. Living Social has added an extra incentive for people to share with their friends, but Groupon is also counting on that as well… hence the “threshold” before the deal is “released.” The only difference is that Groupon is playing “take away” – “we will take the deal away from you if we don’t sell enough.” That could work against the merchant who, obviously, WANTS these new customers walking in their door.
    As for “privacy” …as long as the companies do not collect and spam the email addresses of those “referred” to them, and I am only getting the offer directly from someone I know, then I am happy to learn about the deal. After all… if I see a movie I like, I’m probably going to tell my friends and, chances are, our “tastes” are probably pretty similar… that is why we are friends.
    Years ago I co-produced a radio show that later became the Home Shopping Channel. When the show was on radio we did this same concept… took merchants advertising dollars as “trade out” and turned around and sold those trade out “dollars” to our listeners for a discount. The merchant got advertising that GUARANTEED them a result… since their new customer had to walk in their door to redeem the certificate. The advertising cost them ZERO – until they got that result, AND, they had the opportunity to upsell the customer, meaning that, if they were successful in upselling enough, the could break even, or even make a profit, off the program.
    But merchants are not in this for the profit from that first transaction. Savvy business owners understand the term LTV – Lifetime Value. They know that each new person that walks in their door, or calls them on the phone, gives them the opportunity to develop a RELATIONSHIP and create a new, loyal, ongoing client.
    Every business should, before they spend $1 advertising, understand what the lifetime value of their AVERAGE client is. The formula is simple… what is your average sale, multiplied by how many times a year your average customer will spend money with you, multiplied by how many years you can expect your average customer will do business with you.
    In a fast food restaurant, the average customer could easily be worth $9000-$20,000 over their lifetime. Knowing this… how much are you willing to invest to get each one of those new customers?
    One of the hardest things to do in business is to get a new customer to do business with you the FIRST time. Once you do, it is 10-12 times EASIER to get them to do business with you again, than to get another new customer. If you are a SAVVY business owner, you will also have a strategy to continue to market to them later. Capturing their email address is a low cost way to make them part of your “family,” keep them in touch with what you are doing, and increase the frequency of their repeat business.
    There are other benefits, for the merchant, that are brilliant here. Offering coupons on a regular basis can “devalue” the merchant in the consumers eyes and “train” them to only do business with them when they can get a “discount.” However these programs are offering a limited time deal… something the consumer can see they are not going to have access to on a regular basis, so there is no risk of creating that perception.
    Another brilliant aspect of this is that, no matter how many people get “the deal” … many more eyes SAW the deal. For instance, the merchant may have had 20,000 “eyes” see them… many of them people who never even knew that business existed before. They got great exposure, even if only a few hundred “bought” the deal. Over time there will be “residual” benefit as many of those 20,000 eyes will do business with that merchant in the future, now that they are aware of them.
    But the BEST thing is that the people who did get “the deal” are immensely “qualified” new customers for that business. They would not have gone to the trouble of getting that deal if they were not that businesses “target” demographic. If the business is smart and savvy… they will go the EXTRA mile when those people come in that first time… maybe giving them another “gift” or perk to be redeemed on a second visit. And on the second… perhaps another. Studies show that three times creates a “habit” so this marketing strategy has a built in way of creating a habit in the consumer… and even TRACKING results.
    Because sites like Groupon, Living Social and, in Orlando, the ConnectionsGroups.com “Connect to Deals” program, offer merchants a GUARANTEED way to get a new customer in their door with the opportunity for their cost to be minimal, break-even, or even better. It creates a win-win-win for all concerned.
    And for we consumers… in this economy… who DOESN’T want to save a buck here and there?

  2. It seems that the livingsocial application could aggregate like requests to generate a qualifying group, without active effort on any individual requestor’s part. Then, simply ask the group members to affirm their transitory affinity.
    Lose a member, & fall below the qualifying threshold? Allow members to reach out for a new member at that point.
    Livingsocial could then parse their users by the extent of their activity/passivity in assembling a qualifying group.
    The point after all (as I understand it) is to group people around their common interest in the product/service at hand, rather than principally whether they are roommates/neighbors/2nd cousins, etc.
    no charge for this bit of app design consulting….