SMX East 2011: Doing Offers Right
Dan Hess @dealradar starts us off. Local Offer Networks has experience with data they use to serve major media companies.
Massive growth of local offers continues. Prediction: in U.S. alone, 3 billion gross revenue from daily local deals. New competitors are entering the space faster than those falling out.
The total offers published is climbing rapidly, doubling quarter over quarter. Consumer fatigue is a real consequence. Consumers are overloaded and merchants are also becoming exhausted.
There has been a shift in the product and service categories. Higher-consideration offers are on the rise. Food and drink offers, which were the majority when started, are declining. What’s coming up are highly considered products and services, like home products and services, health, medical and dental, and clothing and accessories. Taking a small gamble is worth it when consumers can easily research the business online.
- Low barriers to entry = anyone can do it.
- Margins will race to the bottom.
- We are on the verge of a dally deal apocalypse.
- Only a handful of companies will survive.
- It’s harder than it looks.
- Strong sites continue to earn healthy margins.
- There will continue to be hundreds of providers.
What the world needs now:
Consumer fatigue is real, and will be beaten.
- Specialization, aggregation, personalization.
- Right person, deal, time, place.
- Improved mobile/LBS checkout and redemption experience.
Merchant fatigue is real, and will be beaten.
- Strategic guidance from deals sites and agencies.
- Measurement tools from emerging providers.
- Execution will vary based on need.
- Evolution to true yield management.
It’s all about data. With a human touch.
Deal or no deal?
- Determine true business needs and program goals.
- Consider product/brand fit.
- Talk to multiple deal originators.
- Be prepared to treat deal customers like gold.
As they look at categories, these tend to perform best:
Jim Moran @jdmoranis next. Whats the state of play? Is the market sustainable? Why should I care? Who should I work with? What should I do?
Most of the most recent growth in revenue and deals offered is in media and technologies companies trying to take a piece of the pie.
Is it sustainable? In May, 43% of daily deals run had at least one prior deal. Repeat usage is driving growth. General satisfaction is good. Breakage rate is a possible sign its not sustainable. And 19% retention rate is a profitable opportunity – it varies widely for category and service.
Why care? It’s very big. It’s so big because the average local merchant is spending more per offer. Average merchant is spending $2000 a year on marketing. But for an offer, a merchant often pays 3x that in a day. Why? Because it’s not regular advertising. There’s a shift toward local e-commerce and a structure that works for businesses.
Industry leader board:
- Gilt City
- Amazon Local
Together they add up to 90% of offers. Merchants can get great deals from other players, or may be interested in knowing who gets greatest reach.
Google’s daily deal service has a lot of promise as it’s tied to insights from search, but it’s still very much in experiment stage.
Prashant Puri @puriprashant is up next. He’ll be talking about what goes into a deal on a tactical level.
- Average order value is a key factor of determining the deal value to go to market with.
- Cost per order – what’s the goal when leveraging a group buying site.
- New vs. existing – customer loyalty and long term value.
Merchant cost is calculated:
Total Cost = Groupon revenue for fulfilled orders + Discount size fulfilled orders – Merchant deal revenue (from breakage)
Breakage = bought voucher without consumer using it = money in your pocket
Breakage rate last year was about 20%.
Anatomy of a deal: example footwear website:
Effects of increasing deal value: higher deal values, greater the risk of negative ROI.
Effects of increasing discounts: as you give more lucrative discounts, more people are buying them. Important to test
Effects of decreasing breakage: as breakage decreases profit increases.
Want the optimal point where breakage is minimum and ROI is maximum.
- Know the metrics
- Group buying sites – great performance channel driver
- Not for everyone
- One size does not fit all
Benny Blum takes the podium. Social deals are a great way to get a low price point person in the door. The problem is low margin initial purchase. It requires high customer lifetime value to make up margin from initial purchase.
He’s sharing a case study with us. Gilt Groupe is the elephant in the room, competing with general e-commerce, local deals and private flash sites. They’re everywhere. There’s a lot of value in going with a group like Gilt.
How to make it profitable? This study is of a local NYC men’s fashion company.
- 1 day on Gilt + normal sales = 6 normal days
- They space out deals every 8 weeks so it doesn’t cheapen the product.
- It’s a close to break even mechanism, so merchant has to really push it socially.
- Brings customers back for 2nd and 3rd purchase.
Aggressive social marketing:
- Incentivizing new customers to refer friends (loyalty program).
- Friends enter relationship with high margin first purchase.
Facebook is one of the first opportunities to maintain an engaged relationship with customers. Getting them to come back and engage, more sticky customers, they actually like you and your style, and that keeps them coming back.
The key to driving lifetime value through a lower price point is engaging in social marketing. Get them into a system that will keep them coming back. If you can have a localized effort (if applicable) you can offer different promotions for local level. Know your customers and their styl so that you can establish brand affinity.