This .ppt was designed to be a bit more self-explanatory, since this version I did not present. It contains numerous hyperlinks to various sources of information on the project.
1. The Daily Deals Space:
Groupon and Amazon
Nick Timmons
Student – UIUC MS-Technology Management
2. Daily Deals Industry - History
• The Concept of Online Deal
Platforms first takes off in 2001, with
the founding of Vente-privee.com
• Other “Flash Sales” sites, like
Woot.com and Gilt Groupe, follow
soon thereafter
• Eventually, flash sales evolve to
incorporate the concept of group
buying into daily deals
• In steps Groupon in November 2008
3. The Daily Deals Industry (DDI)
• "There's never been anything--
radio, TV, newspaper, whatever--that could generate
small business sales so quickly. We want to do for
local e-commerce what Amazon did for normal
consumer goods."
• According to a study – Andrew Mason, CEO, Groupon
released by BIA/Kelsey in
Sep „11, gross revenues are
projected to grow from a
current $873 million to $4.2
billion by 2015 (a forecast
revised upwards 64% from a
BIA study in Mar „11).
4. Overview -
• Founded in Chicago November 2008
• Name = portmanteau of “Group Coupon”
• Current revenue run rate of $100M per month
• Operates in >500 markets in 44 countries
• The fastest growing company, by revenue, ever
• Valuation: $7.67b, and plummeting (most recent earnings pop
notwithstanding); down from Nov. IPO price of $15b
• No Syndication; push deals via massive sales force and good copy
5. Overview -
• Launched in June 2011 in Boise, Idaho, ―a city that
embraces fun,‖ to signify the kind of ―adventurous spirit
[they] want customers to experience everyday.”
• Began with an evolved
aggregator model, in order to
leverage its $175m investment
in Living Social.
• Beyond their entry
play, AmazonLocal is moving
towards personalization, where
they can really leverage their
existing platform of 164m
subscribers.
6. The DDI – Porter‟s Five Forces
+ Attractive profits, requires little technology
+ Low differentiation in offerings
Threat of + Extremely easy model to copycat
New - Larger scale operations are most successful
- Lack of a syndication model
Entrants
- Low to no switching cost -HIGH-
- Similar products/services - DD sites depends on vendors
Bargaining
power of - Low switching cost
- Discount erodes brain value
Bargaining supplier + Gain access to huge market
power of Rivalry + Drive traffic and awareness
buyer -MEDIUM-
-HIGH- + Low financial risk
-HIGH-
Threat of - Over 400 clones in U.S
- No consumer loyalty
Substitutes - Low differentiation
- New services using mobile and social platforms
- Easy to imitate
+ Disrupted printed ads, radio deal -LOW- + No exit cost
7. Critical Factors for Success in DDI
• LTV : CAC
– Life Time customer Value
– Customer Acquisition Cost
– 3:1 is optimal target ratio
• According to HBS Professor
Tom Eisenmann
• “Groupon Anxiety”
– Customers get SO excited to view new deals each day
– Must be careful in making future usage estimates based
on initial high usage rates; essentially overinflating LTV
and causing too much expenditure on customer
acquisition.
8. Critical Factors for Success in DDI
• New channel development
– Social Networks
• People want to buy what their friends are buying and
want to leverage the same deals people in their
network are taking advantage of.
• P2P/Viral Marketing
• Peer pressure
– Deal threshold generates larger impulses to engage in
multiple buys, and also motivates customers to find their
friend to purchase the offer together.
• Easier to be accepted
– Message from known source (friend) has larger chance to
be read.
9. Critical Factors for Success in DDI
• New channel development
– Mobile
• Given the group buying nature of the daily deals,
and the fact that they need to reach a “tipping
point”, minimizing transactional frictions is a
must. Being able to buy whenever, on the go, is
thus crucial.
• This is THE crucial future customer touchpoint.
One only needs to look at the heart of the
facebook IPO situation. Financial growth models
don‟t work as well when “socially oriented”
businesses” (in the Web 2.0 sense) can‟t monetize
their user base on a mobile basis.
10. Critical Factors for Success in DDI
• Create centralized portal for end-users and
vendors
– Customer-Centric View: Strong bargaining power
w.r.t. suppliers means Group purchasing may
generate larger amount of discounts
– Vendor-Centric View: Can reach more end-users
and thus improve advertising cost performance
―When asked, 87% of people said they would
increase their use of daily deals if they could find
only deals that interest them all in one place.‖
• Lisa Gurry, Bing Deals
11. Critical Factors for Success in DDI
• Enabling Impulse Purchasing
• Uses time limitation to cajole customers into
making decisions in the moment
• Deal thresholds also improve impulsivity and
encourage multiple purchases
• Customers can not predict what the next
product/service will be
– Creates a palatable sense of excitement about what
could or should come next!
12. Critical Factors for Success in DDI
• Enabling Impulse Purchasing
DDI’s Holy Grail = “e-tailing locally”
• A key component to internet retailing and e-
commerce is the necessity of waiting between
purchase and consumption.
• Daily Deals represent a way to marry the efficiencies
of the web to local commerce, to purchases driven by
impulse that can be utilized right now.
13. Success factors of Groupon
• First Mover Advantages
– Developed a significant lead in securing
customer loyalties at a time when purchasing
habits for local are up for grabs.
• As with, say, Target using statistics to perform
behavorial research to target pregnancies earlier, at a
time when purchasing habits are similarly up for grabs
14. Success factors of Groupon
• First Mover Advantages
– Earned, and still earns, above avg gross returns
• Harvard Working Paper - ―We are struck by the large
fees that leading discount voucher services
charge…large fees relative to Groupon’s marginal
costs of voucher provision.‖
– Scaled as quick anyone ever has
• Given the powder keg that is local e-commerce, the first
to discover it was always going to grow fast.
– Full attention on single business
• This leads to “extras” like the importance of copy as
small competitive differentiators.
15. How Groupon Defends vs. DDI
Competition
• Vendor lock-in
– Groupon signs exclusive contract with vendors
• Buffer clause in the contract
– Prevent vendors from signing another contract
with its competitors for N weeks/months
• Human factor (Sales Forces)
– The furthest on the learning curve
• Outbidding anyone else on paid acquisition
16. Groupon - Securing Porter‟s Five
Forces
Customer Acquisition Cost drive up
Vendor Lock-In
Buffer clause
Strong Sales Force
17. Success factors of AmazonLocal
• Second Mover Advantages
– Benefits greatly from getting involved 2.5
years after industry inception, because
demand is far less uncertain
– Market Research to further serve customer
needs can be more readily implemented
– Learn from First Mover mistakes, like
Groupon‟s LTV-CAC miscalculations, or its
refunding policy problems
18. Success factors of AmazonLocal
• Large (and fast) logistics across the country
(1-2 day to door delivery)
• Broad variants of business
– Does not have to rely on single service.
– More tolerance for specific industry fluctuations.
• Existing E-tailing platform
– Experience building an internet commerce
platform is immeasurably valuable when creating
a local e-commerce platform
19. Examples of Success - Groupon
Groupon
Provides 50% discount chance Provides chance for ads
End Customer Vendors
Groupon holds the largest the daily deal record.
$15.6m for Nordstrom Rack
20. Examples of Success - AmazonLocal
and Living Social
Amazon
Invested $175m Develop its own platform
Living Social + Amazon: AmazonLocal:
Jan 19, 2011 One year later
• $20 Amazon Gift cards for $10 • Amazon $5 for $10 Gift card
• 1.1m deal (cards) sold • Fastest selling deal in the
industry‟s history
• $11m in Gross revenue
• 1m deal (cards) sold in 17 hours
• Year‟s most successful • $5m in Gross revenue (5x normal
Living Social deal weekly operational revenue)
21. The Future of Daily Deals
• Key Distinction between end users and
merchants.
End Users want value added services that help
them satisfy their behavioral drives NOW. They
want to interact seemlessly and are ever
increasingly mobile. And “saving 50% or more
everyday” binds the purchasing decision together.
22. The Future of Daily Deals
• Merchants
– Harvard Working Paper - ―Our model reveals that a
discount voucher service is more likely to be profitable for
affiliated firms, all else equal, if customers using that service
have valuations substantially different from those of other
customers…the difficulty as the voucher service grows: As
more consumers use vouchers, voucher-users necessarily
come to resemble average consumers so the use of a voucher
comes to convey less information about a consumer's
valuation. Thus, as voucher services grow, their
affiliates will have to rely on voucher advertising
rather than voucher price discrimination. Current
voucher services' profits and recent growth may therefore
not be good predictors of those services' future values.‖
23. The Future of Daily Deals
• Merchants
– Purveyors of discount vouchers should focus
on forced/advertised awareness
• Merchants see value in firms like AmazonLocal
and Groupon because they can make money from
sales, yes, but ALSO because people locally that
don‟t know about those merchants might do so
through these deals. The value of the latter
outweighs that of the former for the vendor as deal
penetration grows.
=Combating Vendor Fatigue
– (more later)
24. The Future of Daily Deals
• Serving Merchants + End Users
= Local e-commerce platform
– Doing this effectively implies larger levels of
syndication, meaning elevated profitability
for the firms that unlock this basic algorithm.
25. The Future - Groupon
• Andrew Mason, in a
May 8, 2012 letter to
shareholders:
―things have been
rocky‖ (surely just
look at their share
price!)…"Although
there are risks in
moving too
fast, companies often “The next step for
don't survive long Groupon is to become a
enough to apologize
for moving too slow." platform for local
commerce.”
-Rob Solomon, CFO,
Groupon
26. The Future - Groupon
• MUST combat Vendor Fatigue
– Without vendors, there are no deals. With no deals, there is
no Groupon.
– Study from Rice University: 32% of Groupon vendors did
not make money through their Groupon offering, and 42%
would not do another daily deal
• Applying the logic from the HBS paper, it might make more
sense sometimes to induce vendors to offer deals based on the
advertising value of leveraging e-platforms for customer
acquisition, as opposed to their outright profitability.
• If you market to merchants based on promises of great near
term profitability, expectations will cause dissatisfation like we
see above. Customers don‟t make money in the direct sense from
a Google Ads Campaign. Its an expense that provides incredible
visibility and engagement. So, too, can offering a discount
voucher. This seems undercommunicated.
27. Groupon‟s differentiation
• Groupon Now
– Different product offerings with mobile technology and GPS.
Real-time daily deal flexiblility for businesses.
– Enabling mobile, repeat, impulse purchases
– Customers in North America who use mobile spend
50% more than Grouponers who do not.
• Groupon Reward
– Loyalty program to increase customer‟s switching costs
– Encourage repurchase at the same store to unlock more deals
• Groupon Goods
– e-Commerce business channel that will compete with Amazon,
Wal-Mart, BestBuy, etc.
– Experimental period
28. The Future - AmazonLocal
• ―There’s lots of competitors in this space, and we all want attention
from the merchants. By far and away, they [merchants] answer
the phone and want to hear what we have to say. We have
relationships with millions of merchants around the world, and 164
million customers worldwide. We know how to work with
merchants + connect with customers — it’s unique to Amazon.com.‖
– Mark Eamer, Product Director, AmazonLocal
In other words, again, the platform is the thing. Groupon might be the
leaders in the space, and competitors like Google Offers might bring
interesting technologies to bear in the future. But nobody has the
experience in creating a commerce platform like Amazon.
29. The Future - AmazonLocal
– ―It’s an interesting thing to think about — the
intersection of consumer products and services that
are fulfilled by local merchants. There are some
things that are logical that I believe we will discover
that we would never have really thought about. This
part is very new to us...‖
• Mike George, VP, AmazonLocal
New, but not uncharted, as he continues…
– “…We are reasonably new to the deals space, but we
aren’t new to the personalization experience. This
[recommendation technology] is a logical extension
of a competency.‖
30. The Future - AmazonLocal
• Leverage Amazon‟s e-commerce platform
experience
– Existing experience in building a platform via integrating
payment systems, continuing to bringthe ethic of “being the
most customer-centric company on Earth” to the table,
crowdsourcing reviews, using information to generate AI
recommendations (deal preferences initiative), web services,
wide offering of everything A-Z (this time, locally), etc => It’s a
bit of a new venue for Amazon, but not a new game.
• Amazon‟s MAJOR goal for 2012, and beyond =
significantly refine its targeting capabilities in
order to deliver the right deal to the right
person at the right time.
31. In the End…
• …the particular genius of the daily deals
industry is in taking $ spent on the Web,
and marrying that to fundamentally local
consumption.
– The firms that continue to ennoble this
concept on into the future will win. And there
are enormous future profits on offer to victors.