The daily deals industry has emerged from nowhere to become worth £6bn in Britain after just a few years.
Groupon and LivingSocial are arguably the market leaders in the UK, as consumers clamour for discounts and offers on anything from a haircut to a three-course meal.
But, as was inevitable for a sector that experienced such rapid growth, it’s seen its fair share of negative headlines.
Groupon’s woes with the OFT, plus an ‘accounting error’ accounting for a 17% drop in share price this week are just two examples.
So what’s next for daily deals? How can it continue to evolve, while at the same time become a more established and respected industry?
We spoke to LivingSocial’s UK MD Peter Briffett to find out.
When we interviewed you in 2010 you said the main challenge for LivingSocial was growth and expansion into new territories. What is the main challenge for your business now?
At that time we were just in London doing one deal a day. Now we’ve scaled it up to new markets and are looking to hyper-localise some of those, like we have done in London with our North London/South London deals.
We’re also working on ‘Instants’, which is our new mobile platform on iOS.
We are seeing a large proportion of our users interacting with us on mobile and this app allows users to see businesses around central London that have signed up to offer instant deals on our platform.
Users can then pick a merchant to go and get some food from, or a haircut, and redeem that offer.
We’ve given all the merchants iPads so they can complete that redemption loop, as they had no infrastructure in place, which was quite annoying actually – but we had to go in there and put the technology in place.
Surely giving iPad to all merchants isn’t a scalable business model?
It’s not scalable nationally, but we are using it to engage with our audience and using London as a test market.
It’s unlikely that we’ll roll that out nationally, but it proves the point that at LivingSocial we use a local advertising model.
We are using social media to power it, but we are in the middle of the loop bringing local businesses new customers.
So do you see yourself partnering with major brands or are you focused on small businesses?
We certainly partner with the big brands. A few months ago we did a deal with M&S which was the fastest selling deal in daily deals history in the UK – we sold 30,000 vouchers in the space of a few hours.
At the moment we’ve got a trial running with Tesco in Sheffield, every store there is promoting LivingSocial deals where you can go online and redeem your clubcard points for a daily deal.
We’ve also done national deals with Next and Boots.
Ultimately we are taking online deals and putting real people into brick-and-mortar businesses – there’s no other online business that can promise that.
It’s a very powerful model but it needs to be structured correctly, whether that’s at a local or national level, but quite frankly we select our partners based on how those deals are going to perform.
Mobile is a growing part of your business. Do you have a target for when it will be a majority of your business or are you following customer trends?
It’s consumer preference to find deals on mobile devices – 23% of users now interact with us on mobile.
We know that people check their phones first thing in the morning, and continue to check them 150 times a day, so there is a preference to use them for shopping and to get information.
The onus is then on us as a business to enable that to happen.
‘Instants’ is our first move into that, with the knowledge that no-one has got this right yet. If you look at the triangle of social, mobile and local, there’s nobody who has got all three elements right.
We do the local commerce part very well, but have we got to get the social and the mobile part completely right.
We are just starting to see more people interact with us through mobile, so it makes sense to have a coherent strategy in place.
What’s been the take up of the Instants deals?
We soft launched last week so have been doing a lot of work getting the deals in place, and are about to ramp up the marketing on it this month.
It’s just available on iPhone at the moment, but obviously we want to be on every mobile platform soon.
It differs from the normal deals as if you buy one of the vouchers but you don’t use it we don’t charge you, you have to actually make the transaction.
How does the charge for merchants differ from instant deals to daily deals?
It’s a slightly different model as most of the values are slightly less for Instants.
But it’s similar, so we have a partnership with merchants whereby they only pay for new customers that physically walk into their premises.
The merchant has the option to pause the deal if they want, but otherwise it runs until they decide they want it to stop or want to change the structure of the promotion.
How much traffic does social drive for LivingSocial compared to other channels?
We rely on our deals to be shared and talked about to build up excitement, and because we rely on social media everyday we constantly have to do something different – that’s part of the challenge of the business model.
And that may be a great restaurant or a great bar appaearing within our listings, but it also may be bungee jumping off Tower Bridge, it also may be ‘zombie chasing’ which is one we did recently.
That was a classic social media driven dea, in which people get driven out to Kent and attacked by zombies. To promote it we had about 50 people out in town dressed up as zombies.
Those sorts of deals work extremely well because they get shared around, and people talk about them.
We have social built into our functionality so if you buy a deal and share it, then three of your friends purchase – you get it for free.
That works very well as a viral tool, since it taps into the mentality of the social shopper who likes to tell their friends about things and be the first to discover something.
How can you make deals more relevant to the consumers, rather than sending everyone deals for waxes or massages?
The aim is to get you more of the stuff you want, where you want it. But that’s been the idea behind marketing for the past 60 years, it’s not brain surgery.
The next stage of the industry’s development is certainly more targeting so we can get you what you want.
But if we ask you what you want, you may say you just want golf deals, but also when we offer you bungee jumping or half price tickets to outer space – you might also like that.
So it’s just that fine line between surprising people and giving them new experiences or deals they might not have thought of – and providing relevant content.
What kind of targeting do you implement via email?
Over time you build up demographic information within a subscriber base. We divide by vertical across ‘Escapes’ and ‘Family’ deals at the moment.
We’re not there yet, but the next step is to provide specific deals based on gender and other pieces of more specific data.
You need to realise that if the daily deals industry is taking part in a marathon, we are only two miles into it.
For us it’s the future of local advertising – we have found a very powerful way of promoting businesses, but is that the only thing we are going to be doing in five years time? Absolutely not.
There have been several stories in the news about local businesses that were overwhelmed by the sudden demand created by daily deals. Do you think the industry suffers from an image problem as a result?
I can’t speak for anyone else, but the very reason we’ve got people on the ground is to make sure things like that don’t happen.
We’ve also got a merchant service team who talk to businesses prior to running deals, make sure they know that their website is going to be hit thousands and thousands of times and asking if they have the resources in place to handle that. Then they make sure the merchants are aware of the redemption process.
This is supporte dby our deal quality team, which makes sure the correct advertising guidelines are in place and that everything is structured correctly.
So there are two or three elements you have to have in place to make sure that sort of thing doesn’t happen, and it doesn’t happen to us because we’ve got them covered.
But does it create a bad image when it happens? Well, it’s not helpful.
At the recent Daily Deals Summit the MD of Groupon said that deals are “risk free” for merchants. Would you agree with that?
I don’t think anything in life is risk free. I could walk out my office door and fall over or get hit by something.
But, without putting words in his mouth, perhaps what he was trying to say was that there is no cost to the deal initially – there is no upfront fee.
And because this exists within social media, you’re not paying a lot of money like you would when advertising via traditional media to get out your brand out there.
But you have to construct a deal that generates excitement to get the customers through the door.
I think as a business you should take the view that if you want to do a promotion, you should partner with a company that gives you an exact ROI and has the tools in place to show you exactly where the customers are coming from – and what the demographics are.
What about driving repeat trade? Does responsibility for customer loyalty sit with the merchants who are ultimately responsible for giving customers a good experience?
No, we have to be responsible and say if a merchant wants to create repeat business – it has to provide the best quality deals, the correct time of redemption and the best experiences.
There’s an onus on the merchant to make sure they’re the one performing the service or whatever it is, but say you buy a deal from us and you don’t have a great experience – then you’ll become more reticent about buying another deal from LivingSocial.
Therefore, it’s our responsibility to make sure customers enjoy the experience. If we don’t take responsibility for that then it’s not really a long term plan.
How does the relationship with Amazon work? It owns a third of LivingSocial, but also has its own deals site, AmazonLocal. Do you see them as a partner a competitor?
Amazon is an investor and we have a partnership with them – but it’s not something we are doing in the UK right now.
I can’t say a lot more about it than that, but while they are an investor, we are a private company and our destiny will be the one we define.
This is an extremely competitive market place, a lot of big players including Google and Facebook have all dipped their toe in the water.
But we have our strategy and we have a lot of intelligence in this business – our path is ours.