The case study describes Tim O'Shaughnessy, who is the CEO of LivingSocial, a fast-growing "daily deals" website. The case explores the risk and reward sharing between LivingSocial, customers, retails, concentrating on the ROI for LivingSocial's retail partners.
Michael I. Norton; Luc Wathieu; Betsy Page Sigman; Marco Bertini
Harvard Business Review (512065-PDF-ENG)
February 24, 2012
Case questions answered:
- What are the advantages and disadvantages of LivingSocial for consumers?
- What are the advantages and disadvantages of LivingSocial for merchants?
- Can you think of the next “killer” product or service that LivingSocial could offer that would benefit both consumers and merchants, and serve as a point of differentiation from the competitors?
Not the questions you were looking for? Submit your own questions & get answers.
What's the Deal with LivingSocial? Case Answers
LivingSocial is an international online promotional company that delivers a wide variety of deals to an ever wider variety of customers that use the service.
Offering their first deal in 2009, LivingSocial provides up to 90% discounts on food, hotels, shops, experiences, and much more to provide businesses with new customers and give customers greater buying power and introductions to new companies.
LivingSocial keeps the user experience easy, the deals frequent and numerous, all while providing excellent customer service, which has allowed them to appeal to many, diverse markets.
The main competitor of LivingSocial is Groupon, which is a similar service that differs in target markets, coupon volume, geographic adoption, and other factors.
LivingSocial faces several important challenges as they look to expand their business, including how to handle their rapid brand extension to multiple cities, regions, and countries (over 600 markets entered as of 2011), how to differentiate from Groupon and other deal services, and other ways to continue to add value in a crowded market.
What are the advantages and disadvantages of LivingSocial for consumers?
LivingSocial’s CEO Tim O’Shaughnessy founded the company to use online applications to make offline life more exciting, interesting, and cost-efficient.
LivingSocial (LS) definitely succeeds in doing so by making the experience (from awareness to purchase) as optimal as possible and giving consumers several key advantages to using their service.
One of the first advantages is the break from the monotonous. Corporate sales pitches Americans have been so conditioned to receiving.
By turning their advertising copy into funny, witty, and easy to understand, LS gives subscribers something they want to read, not delete. LS features a referral system that actually gets people using it. If only three of your friends purchase the same deal, the deal becomes free for the referrer, passing on tremendous savings to the referrer, who can then enjoy the deal with his or her friends.
While there is a minimum of three for the referrer’s purchase to become free, unlike Groupon, LS’s general deals become available immediately without a minimum quantity.
Another benefit passed onto consumers from LS is that they go for a quality over quantity approach to delivering deals to consumers’ inboxes, unlike Groupon, as LS relies heavily on geographic location and personal profiles and preferences to generate the most relevant and likely to be purchased deals possible.
Experiences, like some of those shown in Exhibit 1, also differentiate LS. However, while LS does provide many differentiating benefits, there are some flaws for customers.
First, as with any deal business, the risk of getting a discounted service to go with the discounted price is real; customers might not get preferential treatment since they aren’t fully paying customers.
Also, LS’s merchants’ portfolio might not appeal to all customers, so subscribers might be trapped into getting deals from only a select number of brands while missing out on others they might like more.
Finally, customers might get too many offers to sort through as the daily deals market gets flooded, so it would be harder for LS to stand out.
What are the advantages and disadvantages of LivingSocial for merchants?
Another main component of LS is adding value to merchants’ current business model and attracting new customers. LS is very good at providing a comprehensive and targeted ad campaign for merchants that require no down payments, so merchants would only have to pay LS back after pulling in revenue from their enhanced promotion.
Businesses also can acquire customers easily this way, as these daily deal companies can have greater reach, more popularity, and resources; for plenty of small companies, LS can make up their marketing strategy.
Compared to the main competitor (Groupon), LS’s effectiveness and business model allows them to generate more revenue per coupon ($24k to $13k).
Additionally, LS was better catering to the 34 and older crowd, health and fitness services, and those on the East Coast, which can be either a pro or con depending on one’s own business needs (Exhibits 4, 5, 6).
Another drawback for merchants is that as consumers use the deals more, they will associate their purchase with the discount and not with the actual company, which will reduce their repeat purchase probability and won’t help the business much.
Current customers would also be cannibalized as the LS deal would give them even more savings for a product they would’ve bought anyway.
LS does not have the same social lift that Groupon does, as according to Figures 1 and 2, not only is Groupon consistently getting more mentions, they are receiving greater strength and reach scores too. Merchants would likely be willing to pay more to get greater exposure and viral marketing, which Groupon seems to do a little better.
Finally, in 2013, LS was hacked and had over 50 million users’ passwords, preferences, and personal info compromised; this security breach could be a detractor from both merchants and users using LS as they wouldn’t want to be put in a risky situation like what LS faced (Figure 3).
Can you think of the next “killer” product or service that LivingSocial could offer that would benefit both consumers and merchants and serve as a point of differentiation from the competitors?
I think the next “killer” point of differentiation for LivingSocial would be through the application of virtual reality (VR). Though the technology is in its infancy right now, I think it is something that will integrate itself into many peoples’ lives and become an important customer experience to be tapped into.
For example, and excuse my lack of knowledge on the topic. Still, if someone uses a VR application linked with LS, they could be walking down the street and immediately get pinged with a deal if they walked past a store and looked at a certain item for an extended time.
While VR tech is likely targeted at the more affluent, partnering with LS could increase the onboarding of both services, all while benefitting the merchants receiving the new customers. The customers would get deals for products they enjoy and can afford.
Though this tech is probably not coming to the general public in the future, it could be a creative and unique use that would add a new dimension (if not literally) to the customer experience and their business model. As one that prides itself on staying edgy, innovative, and smart, virtual reality ties into all three of those.