Kelly Scott Madison

Groupon, LivingSocial, and the Future of Local Deal-a-Day Websites



By: Cora Bryan, Media Planner

What is it?

The launch of in November 2008 gave rise to a new service that, three years later, continues to grow: deal-a-day websites. These websites all work from Groupon’s basic model of offering new coupons each day to subscribers, presenting discounts on everything from haircuts and handbags to restaurants and rental cars.  With Groupon’s success came many competitors including LivingSocial and Thrillist, currently the second- and third-ranked daily deal websites in the marketplace. In addition to these, Venture Beat lists almost two dozen new competitor sites like Bloomspot, DealFind, and Buy With Me. The latest websites to latch onto the trend are established sites like Yelp and Gilt Groupe, which bring with them large bases of already-dedicated consumers.

Why is it important?

BIA/Kelsey estimates U.S. consumer spending on deal-a-day websites was $870 million in 2010 and predicts a compound annual growth of over 35% to reach $3.9 billion by 2015.  In the space of three years, increased competition in the deal-a-day marketplace is also encouraging innovation.

Previously, these services dealt exclusively with local vendors, but in August 2010 Groupon launched its first national deal offering $25 off a $50 purchase at Gap, signaling that national deals are gaining steam and viability.  In addition, many of these sites have added targeting functions, so subscribers can now use relevant data like zip code, gender and interests to tailor deals to their own tastes in an effort to make the daily emails they receive from Groupon more relevant.

Groupon maintains industry supremacy thanks to its high monthly visitors and advanced functionality, but upstarts are gaining ground as advertisers look for competitors willing to beat Groupon’s pricing.  In a December 2010 comScore report, Groupon was reported to have 10.76 million unique monthly visitors, while their closest competition, LivingSocial, reported about 5.3 million uniques. The next closest site, Thrillist, had 392,000 unique monthly visitors.

What's next?

The deal-a-day category continues to grow and specialize by allowing users to choose to be presented with only the most relevant deals. Additionally, deal aggregators like YipIt and Dealery have begun to crop up in an effort to help users easily navigate through deals available on different deal-a-day sites. Similar to sites like Priceline and Orbitz in the airline industry, these aggregators allow users to enter their location and interests, and the deal aggregator will send a daily email of every deal available through multiple deal websites that fit the individual user’s criteria. This has the potential to make finding the most attractive deals much easier for consumers, but like the airline industry, it also has the potential to make finding a deal so easy that consumers come to expect a deal at every turn and force advertisers to adjust their pricing to stay current.

What we think...

Deal-a-day websites can be an excellent means of raising awareness and customer acquisition, but a few caveats apply. These deals work best as one-off solutions because of the cost involved to the client. Typically, the deal website receives 50% of whatever is sold, and the client will often pay the credit card processing fee (generally 2.5% of the value of the deal), depending on the website. Thus, clients looking for an immediate revenue bump could be disappointed, while clients willing to incur a small short-term loss in the service of expanding their consumer base in order to increase future revenues will continue to be pleased with the results deal-a-day websites can produce. The deal-a-day promotion should also be worked into a broader media plan in order to continue to keep consumer interest in a brand long after the deal has expired.

In addition, advertisers must be prepared for the influx of potential new users that the deal generates. If the service or product is not up to par, or the consumer can’t act on the deal when they prefer, the negative word-of-mouth may have a bigger impact on the business.

Finally, we will keep an eye on the development of any unique targeting capabilities these sites continue to develop.  Based on consumer purchases, the data that is now being collected on users, including deal preferences, category interest, and the time of day purchase cycle could translate into very strong advertising opportunities for the future.

Where to find more...,Rpp:25,Ro:2

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