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a nd the Online Coupon Industry Ben Sobczak Jennifer Nevins Joel Samen Mike Rabinovich Sindhu George PowerPoint Presentation
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a nd the Online Coupon Industry Ben Sobczak Jennifer Nevins Joel Samen Mike Rabinovich Sindhu George. MK-859: Business Marketing April 23, 2012. Industry Mechanics. Redeem Coupon. $. Payment Less Cut. Full Payment. $. $. Broker. Merchants. Consumers. Coupon Offer. Coupon.

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slide1

and the

Online Coupon Industry

Ben Sobczak

Jennifer Nevins

Joel Samen

Mike Rabinovich

Sindhu George

MK-859: Business Marketing

April 23, 2012

industry mechanics
Industry Mechanics

Redeem Coupon

$

Payment Less Cut

Full Payment

$

$

Broker

Merchants

Consumers

Coupon Offer

Coupon

Provide Service

merchant needs
Merchant Needs
  • Awareness
  • Exposure to new customers
  • Manage Inventory and Capacity
  • Unload excess inventory or capacity
  • Price Discrimination
  • Discounts to consumers who value product/service less than ordinary consumers
  • Customer needs
  • Buzz Factor
  • Word of mouth promotion
a growing industry
A Growing Industry

Source: Needham & Company LLC worlwide estimates (Jan 2011)

industry is highly competitive
Industry is Highly Competitive

Threat of Substitute Product

Threats of New Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Intensity of Rivalry

Government

  • Low switching costs
  • Near perfect information on costs
  • High fragmentation of marketplace
  • Low differentiation of products
  • Main supplier is labor
  • High unemployment
  • New industry attracts high quality talent
  • This could decline as economy recovers and industry matures
  • Innovations are easily copied
  • Currently market penetration over profits
  • High level of marketing expenses
  • Laws and policies differ by region
  • CARD Act
  • Privacy Laws
  • Low costs of new entry
  • Need brand equity in order to build customer base
  • Time to build distribution network
  • Short term not profitable
  • This is a unique substitute to old economy coupons
  • Low switching costs, no tie-in
  • Hard to quantify performance vs. traditional
  • High
  • Medium
  • Low

Legend

challenges and opportunities
Challenges and Opportunities

Opportunities

Challenges

  • Prove Efficacy
  • Questionable profitability for merchants
  • Capacity issues for small businesses
  • Fraudulent deals
  • Generate Long Term Buy In
  • Existing players are not yet profitable
a market dominated by two
A Market Dominated by Two

Increased market share; added 3% of the industry’s revenues from July 2011- August 20111

Lost 2% market share over the same period1

Focuses largely on daily travel deals

Combined market share of 22%; numbering more than 4002

Others

22%

5%

53%

20%

Other online discounters

Source: “Daily Deal Trends in North America.” Yipit Data. http://www.yipit.com. August, 2011.

value distribution profitability
Value Distribution & Profitability

Value Distribution per Deal (typical discount of 50%)

  • Merchant
  • Broker
  • Revenue
  • Volume of new customers and products
  • Revenue
  • Volume of deals
  • Profit
  • Fixed costs related to merchant and consumer acquisition
  • Profit
  • Conversion rate from first-time to repeat-buyer
  • Strategic
  • Large base of loyal merchant customers
  • Strategic
  • Cannibalization of customer base
livingsocial playing catch up to groupon
LivingSocial: Playing Catch-up to Groupon

Others

22%

Industry Position

5%

53%

  • 2nd largest by market share, revenue
  • Lost 3%-5% market share in 2011
  • 46 million subscribers

20%

“LivingSocialis the online source for discovering valuable local experiences”.

“We help great local businesses grow by introducing them to high-qualitynew customers, and give merchants the tools to make our members their regulars”.

Source: “Daily Deal Trends in North America.” Yipit Data. http://www.yipit.com. August, 2011.

customer segments product offerings
Customer Segments & Product Offerings

Target Customer Segment

Broad-based

Niche

Daily Deals

Families

Broad-based

Product/Service Type Offered

Adventures

Niche

Take-out

& Delivery

Escapes

Gourmet

solution 1 release developer api
Solution #1: Release Developer API

Facebook user growth (in millions)

Benefits to LivingSocial

Benefits to Merchant

Risks

Competitive Response

  • Reduced Sales Costs
  • Increased Consumer Reach
  • Tiered Subscription Model for Data
  • More Visibility of Promotions
  • Potential Loss of Control
  • Easy for Competitors to Duplicate
solution 2 amazon loyalty partnership
Solution #2: Amazon Loyalty Partnership

Benefits to LivingSocial

Benefits to Merchant

Risks

Competitive Response

  • Target More Customers Using Amazon
  • Lower Cost Per Acquiring Consumers
  • More Customer Loyalty to LivingSocial
  • Better Analytics on Purchase Patterns
  • Decreased Profitability for LivingSocial
  • Harm Amazon Brand Name
  • Easy for Competitors to Duplicate with Partners
  • Groupon with Expedia and Four Square
solution 3 analytics to prove efficacy
Solution #3: Analytics to Prove efficacy

Source: “Daily Deal Trends in North America.” Yipit Data. http://www.yipit.com. August, 2011.

slide16

Solution #3: Analytics to Prove efficacy

Coupon

Analytics

Purchase

  • Coupon ID
  • Purchase Total
  • Coupon Total
  • Profit to Merchant
  • Coupon ID
  • Coupon Value
  • Coupon ID
  • Purchase Total

Benefits to LivingSocial

Benefits to Merchant

Risks

Competitive Response

  • Larger, More Loyal Merchant Base
  • Increase Revenue Through Fees
  • Define Profitability of Campaigns
  • Tie Purchases to Consumers – Demographics
  • Propose Key Groups to Target in Future
  • Campaigns Proven to be Unprofitable
  • Privacy
  • Easy for Competitors to Duplicate
implementation roadmap
Implementation ROADMAP

Release Developer API

Support and Marketing

Full Roll Out

Initial development

Beta Testing

Use Analytics to Prove Efficacy

Ongoing Development

Full Roll Out

Extend current analytics capabilities

Beta test

Amazon Loyalty Partnership

Measure and Control

Develop Co-branded credit card

Software Integration

Sales/Marketing

living social in a sea of red
Living Social in a SEA of RED

2011 Financial Situation

$1B Cash Infusion Needed

slide19

Benefits of Recommendations

  • Old Projections
  • Break Even in 2014
  • $1B Injection of Liquidity Necessary
  • New Projections
  • Break Even in 2013
  • $500m Injection of Liquidity Necessary