Chris Treadaway is founder and CEO of Lasso, the social commerce middleware solution for brands and media companies. He is also the author of the book Facebook Marketing: An Hour a Day. He blogs at treadaway.typepad.com.
There’s no denying the appeal of LivingSocial’s half-off Amazon gift card deal. The deal for $20 in Amazon merchandise for $10 racked up over 1.3 million sales, rivaling Groupon’s recent national coup with their Gap coupon.
First of all, kudos to LivingSocial for taking full advantage of Amazon’s recent $175 million investment in the company. In an odd twist of the value proposition of group deals, it’s LivingSocial that benefits the most in offering the deal, especially as they try to claim market share against the increasingly ubiquitous Groupon.
Yet as these “retail hacking” services have leveraged their impressive investment dollars to emerge as national leaders of the space, it’s the local businesses that the companies originally celebrated and benefited that are left behind. And ironically enough, big brands that ultimately won’t need a group purchasing service to monetize great deals are the present-day beneficiary.
The Local Sell-Out
The appeal and promise of Groupon, LivingSocial and other early entries into the group purchasing game was that small brands, companies and businesses could reach potential new customers, and users received great deals on things that they may not have otherwise tried.
There was a serendipitous magic to the process. Those early deals were extremely high value for consumers, but a value of experience as much as price. The nice restaurant you’ve been wanting to try, the massage you’ve been needing but putting off, the random off-kilter adventure like skydiving — these were the things we as consumers loved to have arrive in our inboxes, and that businesses were excited to prompt.
But let’s be honest: The retail hacking secret is long out of the bag, and as more and more businesses sign up to offer deals (and more companies offer group purchasing), the consumer is the big loser. Why? Competition has made it tougher for the group purchasing providers to attract the top local advertisers in almost every market. That’s why you’ve probably noticed far more “great deals” from acupuncturists than great restaurants lately. It used to be exciting to get the Deal of the Day e-mail. It isn’t anymore.
Group purchasing has gotten much less effective at the local level, precisely where local businesses and we as local-conscious consumers originally found so much value. The leading platform providers are now seeking top national and international brands to do group purchasing deals (e.g. Gap, Amazon, etc.), while the hyperlocal promise, as delivered by group purchasing, falls by the wayside.
But Is That What Brands Need?
Consider the case of The Gap — the first international brand to experiment in the group purchasing arena. The Gap’s August experiment with Groupon sold 445,000 coupons for $11 million in revenue. The deal was very popular, but some have questioned whether or not it was actually a win for The Gap after fees, lost revenue due to sales to existing customers, and accounting of the deal in financial statements. Consider also that The Gap has almost 1.3 million fans on Facebook and countless people in e-mail lists and its rewards program. If you have those assets at your disposal, do you really need to outsource group purchasing? And do you really want to treat your existing customers the same as you treat new customers? Doubtful.
Lessons Learned
1. Great deals from great businesses will always be interesting to consumers whether they come from a top-notch local business or an internationally respected brand;
2. Brands that need a quick shot of cash can capture that demand with a great deal and the right social commerce middleware to support them; and
3. The local business/group purchasing honeymoon may be ending, perhaps in a messy divorce.
Big brands have discovered the opportunity in social commerce and are now looking to capitalize. As what happened with search advertising and what is happening in social advertising, it’s about to get a lot tougher for the typical local business to compete. Easy money from group purchasing is getting a lot harder to find for many local businesses. It is now the beginning of the second wave of social commerce where a variety of more sophisticated marketing approaches, tools, and tricks will be necessary for savvy local businesses to succeed. When that happens, brands will be sure to follow.
Chris Treadaway
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